-----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, RQzoGbNtHbfICphN/AnU0xe/o2TOV47JiPUpQ6FU1EKLxyVbckeM2yaGsTpqB7M0 B28a+lYavWUl3Qv1MqPzoQ== 0000940180-97-000644.txt : 19970729 0000940180-97-000644.hdr.sgml : 19970729 ACCESSION NUMBER: 0000940180-97-000644 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19970728 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HCC INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000316884 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 952691666 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-32207 FILM NUMBER: 97646325 BUSINESS ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770-1592 BUSINESS PHONE: 2132837500 MAIL ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770-1592 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERMETIC SEAL CORP CENTRAL INDEX KEY: 0000047058 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 953443353 STATE OF INCORPORATION: DE FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-32207-01 FILM NUMBER: 97646326 BUSINESS ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770 BUSINESS PHONE: 2132837500 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLASSEAL PRODUCTS INC CENTRAL INDEX KEY: 0001043045 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 952691666 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-32207-02 FILM NUMBER: 97646327 BUSINESS ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770 BUSINESS PHONE: 2132837500 MAIL ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEALTRON ACQUISITION CORP CENTRAL INDEX KEY: 0001043048 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 311193056 STATE OF INCORPORATION: DE FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-32207-03 FILM NUMBER: 97646328 BUSINESS ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770 BUSINESS PHONE: 2132837500 MAIL ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEALTRON INC CENTRAL INDEX KEY: 0001043049 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 311191739 STATE OF INCORPORATION: DE FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-32207-04 FILM NUMBER: 97646329 BUSINESS ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770 BUSINESS PHONE: 2132837500 MAIL ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HCC INDUSTRIES INTERNATIONAL CENTRAL INDEX KEY: 0001043050 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 953974136 STATE OF INCORPORATION: DE FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-32207-05 FILM NUMBER: 97646330 BUSINESS ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770 BUSINESS PHONE: 2132837500 MAIL ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770 S-4 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1997 REGISTRATION NO. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- HCC INDUSTRIES INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) --------------- DELAWARE 3679 95-2691666 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER) INCORPORATION OR CLASSIFICATION CODE ORGANIZATION) NUMBER) --------------- 4232 TEMPLE CITY BOULEVARD P.O. BOX 739 ROSEMEAD, CALIFORNIA 91770-1592 (213) 283-7500 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- ANDREW GOLDFARB HCC INDUSTRIES INC. 4232 TEMPLE CITY BOULEVARD P.O. BOX 739 ROSEMEAD, CALIFORNIA 91770-1592 (213) 283-7500 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- Copies to: LOU R. KLING, ESQ. HOWARD L. ELLIN, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 919 THIRD AVENUE NEW YORK, NEW YORK 10022 ---------------
PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER NAME OF ADDITIONAL JURISDICTION OF CLASSIFICATION IDENTIFICATION REGISTRANTS* INCORPORATION NUMBER NUMBER ------------------ --------------- ---------------- --------------- Hermetic Seal Corporation Delaware 3679 95-3443353 Glasseal Products, Inc. New Jersey 3679 22-1909729 Sealtron, Inc. Delaware 3679 31-1191739 Sealtron Acquisition Corp. Delaware 3679 31-1193056 HCC Industries Interna- tional California 3679 95-3974136
- ------- * Address and telephone number of principal executive offices are same as those of HCC Industries Inc. APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF OF SECURITIES TO BE AMOUNT TO BE OFFERING OFFERING REGISTRATION REGISTERED REGISTERED PRICE PER UNIT PRICE(1) FEE - ------------------------------------------------------------------------------- 10 3/4% Senior Subordi- nated Exchange Notes due 2007......... $90,000,000 100% $90,000,000 $27,272.73 - ------------------------------------------------------------------------------- Guarantees of the 10 3/4% Senior Subordinated Ex- change Notes due 2007 by Registrants Other than HCC Industries Inc. ... $90,000,000 (2) (2) (2)
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee. (2) Pursuant to Rule 457(n), no separate registration fee is required with respect to the Guarantees. --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JULY 28, 1997 PROSPECTUS OFFER FOR ALL OUTSTANDING 10 3/4% SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR 10 3/4% SENIOR SUBORDINATED EXCHANGE NOTES DUE 2007 HCC INDUSTRIES INC. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME ON, 1997, UNLESS EXTENDED ----------- HCC Industries Inc., a Delaware corporation ("HCC" or "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange an aggregate principal amount of up to $90.0 million of its Senior Subordinated Exchange Notes due 2007 (the "New Notes") of the Company, which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding Senior Subordinated Notes due 2007 (the "Old Notes" and, with the New Notes, the "Notes"), of the Company from the holders thereof. The terms of the New Notes are identical in all material respects to the Old Notes, except for certain transfer restrictions and registration rights relating to the Old Notes and except that, if the Exchange Offer is not consummated by November 3, 1997 or the Company fails to comply with certain other registration obligations with respect to the Old Notes, additional interest will accrue on the Old Notes from and including such date until but excluding the date of consummation of the Exchange Offer payable in cash semiannually in arrears on May 15 and November 15, commencing November 15, 1997 at a rate of .50% per annum (increasing at .50% per annum at the end of each 90-day period following November 3, 1997, but in no event will the additional interest exceed 2%). The Old Notes were issued pursuant to an offering (the "Offering"), which was exempt from registration under the Securities Act, on May 6, 1997. The Notes will not be redeemable prior to May 15, 2002 except that, until May 15, 2000, the Company may redeem, at its option, up to an aggregate of $20.0 million of the principal amount of the Notes at the redemption price set forth herein plus accrued interest to the date of redemption with the net proceeds of one or more Public Equity Offerings (as defined herein) if at least $70.0 million of principal amount of the Notes remains outstanding after each such redemption. On or after May 15, 2002, the Notes are redeemable at the option of the Company, in whole or in part, at the redemption prices set forth herein plus accrued interest to the date of redemption. Upon a Change of Control (as defined herein), each holder of Notes may require the Company to repurchase such Notes at 101% of the principal amount thereof plus accrued interest to the date of repurchase. See "Description of the Notes--Change of Control." The Notes will settle through the book-entry facilities of the Depository Trust Company. The Old Notes are, and the New Notes will be, senior subordinated unsecured obligations of the Company. The Old Notes are, and the New Notes will be, subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Company. As of March 29, 1997, after giving effect to the Offering and Use of Proceeds therefrom (as defined herein) and the payment of related fees and expenses, the amount of Senior Indebtedness of the Company would have been approximately $3.1 million and the Company would have had the ability to borrow up to an additional $20.0 million under the Revolving Credit Facility (as defined herein). The Old Notes are, and the New Notes will be, fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis by all of the Company's operating subsidiaries including, Hermetic Seal Corporation ("Hermetic"), Glasseal Products, Inc. ("Glasseal"), Sealtron Inc. ("Sealtron"), Sealtron Acquisition Corp. and HCC Industries International (collectively, the "Subsidiary Guarantors"). See "Description of Notes--Subsidiary Guarantees" and "--Certain Covenants." The Subsidiary Guarantees (as defined herein) will be subordinated in right of payment to all existing and future Senior Indebtedness of the Subsidiary Guarantors, including guarantees under the Revolving Credit Facility. The Notes will rank pari passu in right of payment with all senior subordinated indebtedness of the Company and senior to any subordinated indebtedness of the Company issued after the Offering. For each Old Note accepted for exchange, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from May 6, 1997. Holders whose Old Notes are accepted for exchange may, in the limited circumstances described above, have the right to receive, in cash, additional accrued interest (if any) thereon to, but not including, the date of consummation of the Exchange Offer, such interest to be payable on the May 15 or November 15 next following such date of consummation. Holders of Old Notes accepted for exchange will be deemed to have waived the right to receive any other payments or accrued interest on the Old Notes. The New Notes are being offered hereunder in order to satisfy certain obligations of the Company and the Subsidiary Guarantors contained in the Registration Rights Agreement dated May 6, 1997 among the Company and the other signatories thereto (the "Registration Rights Agreement"). Based on interpretations by the staff of the Securities and Exchange Commission (the "SEC") as set forth in no action letters issued to third parties, the Company believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement with any person to participate in the distribution of such New Notes. However, the Company does not intend to request the SEC to consider, and the SEC has not considered, the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement or understanding to participate in a distribution of New Notes. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker- dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 90 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." The Company will not receive any proceeds from the Exchange Offer. The Company will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. In the event the Company terminates the Exchange Offer and does not accept for exchange any Old Notes, the Company will promptly return the Old Notes to the holders thereof. See "The Exchange Offer." ----------- There is no existing trading market for the New Notes, and there can be no assurance regarding the future development of a market for the New Notes, or the ability of holders of the New Notes to sell their New Notes or the price at which such holders may be able to sell their New Notes. Credit Suisse First Boston Corporation and Furman Selz LLC (the "Initial Purchasers") have advised the Company that they currently intend to make a market in the New Notes. The Initial Purchasers are not obligated to do so, however, and any market-making with respect to the New Notes may be discontinued at any time without notice. The Company does not intend to apply for listing or quotation of the New Notes on any securities exchange or stock market. ----------- SEE "RISK FACTORS" COMMENCING ON PAGE 14 OF THIS PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- The date of this Prospectus is , 1997. AVAILABLE INFORMATION The Company and the Subsidiary Guarantors have filed with the SEC a Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act, with respect to the New Notes being offered by this Prospectus. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits thereto, to which reference is hereby made. Any statements made in this Prospectus concerning the provisions of certain documents are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement. Separate financial statements of the Subsidiary Guarantors are not included in this Prospectus because the guarantee obligations of the Subsidiary Guarantors are joint and several and because their aggregate assets, liabilities, earnings, and equity are substantially equivalent to the total assets, liabilities, earnings and equity of HCC Industries Inc. and its subsidiaries on a consolidated basis. The Registration Statement and the exhibits thereto may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for inspection and copying at the regional offices of the SEC located at 7 World Trade Center, New York, New York 10048 and at Citicorp Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such material may also be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Company is not currently subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result of the Exchange Offer, the Company will become ~subject to such requirements, and in accordance therewith will file periodic reports and other information with the SEC. The SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants, such as the Company, that file electronically with the SEC and the address of such site is http://www.sec.gov. In the event the Company is not required to be subject to the reporting requirements of the Exchange Act in the future, the Company will be required under the Indenture, dated as of May 6, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"), pursuant to which the Old Notes have been, and the New Notes will be^, issued, to continue to file with the SEC and to furnish to holders of the Notes the information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act, including reports on Form 10-K, 10-Q and 8-K, for so long as any Notes are outstanding. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS This Prospectus includes "forward-looking statements." All statements other than statements of historical facts included in this Prospectus, including without limitation the statements under "Business-Business Strategy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's or management's expectations ("Cautionary Statements") are disclosed in this Prospectus, including without limitation in conjunction with the forward-looking statements included in this Prospectus and under "Risk Factors." All written and oral forward-looking statements made following consummation of the Exchange Offer that are attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. CERTAIN CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS SUMMARY ARE USED HEREIN AS DEFINED TERMS ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, (I) ALL REFERENCES TO "HCC" HEREIN REFER TO HCC INDUSTRIES INC., ALL REFERENCES TO THE "COMPANY" HEREIN REFER TO HCC INDUSTRIES INC. AND ITS CONSOLIDATED SUBSIDIARIES AND (II) THE INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO THE RECAPITALIZATION AND THE OFFERING. THE COMPANY The Company is the largest custom manufacturer of high precision hermetically sealed electronic connection devices in the United States. High precision hermetic seals are used primarily to permit the flow of electricity across a barrier that separates different atmospheric media (such as gas or liquid to air or vacuum). A hermetic seal is generally accomplished through the creation of a glass-to-metal seal ("GTMS"). The Company's glass-to-metal seal products are custom designed for each application to meet demanding pressure, temperature and vibration specifications. The Company focuses on the high-end, custom segment of the GTMS market where it believes that its higher value added manufacturing and engineering capabilities enable it to differentiate itself from its competitors and enhance profitability. Hermetically sealed components have diverse applications and are found in electronic equipment used in automobiles, airplanes, process control devices, military equipment, electronic sensors, petrochemical related equipment and telecommunications equipment. The Company estimates that the total market for hermetic seals is $600 million, of which approximately half of the market services high-end custom applications in which the Company competes. The market for custom manufactured hermetically sealed products is extremely fragmented, with no other competitor offering the same breadth of products as the Company. The Company believes it is a leading supplier of glass-to-metal seals to each of the industries that it supplies. The Company has a diverse customer base, with sales to approximately 1,200 customers in fiscal 1997, and believes that it has significant competitive advantages because of its custom designed engineering, rapid turnaround capabilities and its strict adherence to quality and reliability. Sales to Special Devices, Inc. ("SDI"), the Company's largest customer, accounted for approximately 27% of the Company's consolidated sales for the fiscal year ended March 29, 1997. Some of the Company's other key customers include: ICI North America, Inc., a subsidiary of Imperial Chemical Industries P.L.C. ("ICI"), TRW Inc. ("TRW"), Allied Signal Inc. ("Allied Signal"), Halliburton Company ("Halliburton") and Schlumberger N.V. ("Schlumberger"). Approximately 70% of the Company's consolidated sales for fiscal 1997 were to customers with which the Company had contractual agreements, sole source relationships, letters of intent or long-term purchase orders. The Company's sales have grown at a compound annual growth rate ("CAGR") of 15% over the last five years. Sales of GTMS products to the aerospace, petrochemical and general industrial markets constituted approximately 59% of the Company's consolidated sales for the 1997 fiscal year. The Company's GTMS products are used in a variety of applications, such as temperature sensors, down-hole logging equipment in the oil and gas industry, and in most commercial aircraft currently in production. The Company believes it is well positioned to benefit from any growth that might occur in these respective markets. 3 Sales of products to the automotive industry constituted approximately 41% of the Company's consolidated sales for the 1997 fiscal year. A substantial portion of the Company's growth over the last several years has come from sales to the automotive industry, particularly hermetically sealed components for use in airbag initiators, automotive crash sensors, climate control devices and anti-lock braking systems. At present, every airbag produced requires at least one airbag initiator (the device that deploys the airbag). The Company is the leading supplier of hermetically sealed products used in airbag initiators, and because of its strong relationships with most of the major initiator suppliers, the Company believes it is well positioned to benefit from projected growth in the airbag industry. Growth in airbag installations is expected to continue through the turn of the century due to the fill-out penetration of driver side and passenger side front seat airbags and increased penetration of side impact and other types of airbags. The Economist Intelligence Unit ("EIU") has forecast that worldwide airbag demand is expected to increase to 104 million units by 2005, a CAGR of 10% from 1995 to 2005. Additionally, other applications which use GTMS products in the automotive industry continue to grow including, for example, seat belt pretensioners, suspension stabilization devices and additional climate control devices. The Company believes that it has established its market position as a result of its (i) vertical integration, (ii) focus on customer service, particularly on the shortening of its manufacturing cycle and improving the timeliness of its deliveries, and (iii) proprietary manufacturing processes used in producing high precision GTMS which has been built up over its 51 years in the industry. Many of the Company's smaller competitors are only involved in one aspect of manufacturing a hermetically sealed electronic connector, typically the heat induced fusing of the glass to the metal. In contrast, the Company produces its own glass and ceramic compounds, designs and machines the metal connector housing and plates the connector pins as required. The Company believes that it has the capability to perform all of the manufacturing functions itself without having to rely on third party contractors, providing the Company a competitive advantage in terms of supplying a high level of customer satisfaction. COMPETITIVE STRENGTHS The Company believes that it has the following competitive strengths: Long-Term Customer Relationships. Many of the Company's customers, including SDI, TRW, Allied Signal, Halliburton and Schlumberger, have been customers for over ten years. The Company believes that both automotive and aerospace original equipment manufacturers ("OEMs") continue to seek long-term partnerships with fewer core suppliers. The Company's relationships are strengthened by the fact that many of its arrangements with its customers provide for the Company to act as the sole source of supply for the customer. The Company estimates that approximately 70% of the Company's consolidated sales for fiscal year 1997 were from contractual agreements, sole source relationships, letters of intent or long-term purchase orders. Market Leadership. A number of the Company's products hold leading market positions in their respective niche markets. The Company believes that it currently produces hermetically sealed products for approximately 50% of the airbag initiators produced in the U.S. The Company believes, based upon long- term relationships with ICI and SDI, that it is well positioned to continue to increase its market share, as well as expand its sales internationally. Commitment to Quality and Service. The Company believes that its commitment to provide consistent, high quality products and services, flexible manufacturing and custom designed products at competitive prices forms the basis for its strong and diversified customer relationships. The Company 4 manufactures most of its parts to specific customer requirements. The Company utilizes Statistical Process Control, Design Failure Mode Effects Analysis, Process Failure Mode Analysis, and a strict adherence to complete manufacturing documentation in order to manufacture high quality products for internal use as well as external customer sales. The Company believes that its knowledge and use of these procedures give the Company a competitive advantage. Sealtron became registered to ISO 9001 in September 1996. Hermetic and Glasseal expect to be registered to ISO 9001 within twelve months and to be registered to QS 9000 (the automotive standard) within 24 months. Proprietary Technology. The Company operates in the automotive, aerospace and general industrial technologies markets in which products typically require sophisticated engineering and production techniques. The Company designs and manufactures new products to fulfill customer needs, and has developed proprietary manufacturing technology since its founding in 1945. The Company believes that this proprietary technology helps enable it to attract and retain customers who require customized, high tolerance products. The Company estimates that it has produced over 75,000 different variations of GTMS. Low Cost Operations. The Company believes that its extensive "in-house" capabilities and vertical integration are competitive advantages that have allowed it to become a low cost producer. By controlling the tolerance of the component parts, the Company has been able to reduce scrap and to increase the yields of its products. Furthermore, the Company is continually developing and assessing its programs designed to increase efficiency and enhance economies of scale in order to further reduce costs. Diverse Products and Customers. The Company has a diverse customer base, with sales of numerous product variations to approximately 1,200 customers in fiscal 1997. Sales to SDI, the Company's largest customer, accounted for approximately 27% of the Company's consolidated sales for the fiscal year ended March 29, 1997. Over the past several years, the Company has recognized consistent growth in sales of GTMS products to the automotive, aerospace and general industrial markets. BUSINESS STRATEGY The Company's strategy is to expand its business through: Focusing on Core Strengths. The Company continues to focus on what it believes are its core strengths and to invest in those businesses that are consistent with those strengths and which exhibit high growth potential. Core strengths include the timely custom design and manufacturing of high tolerance, high reliability components and the effective program management of long-term contracts and supply agreements. Leveraging Customer Relationships. The Company works closely with its customers to jointly develop and design new products and to improve the performance and lower the cost of existing products. The Company has sole source supply contracts, shares product development, and enters into other teaming arrangements with its key customers to further strengthen and broaden its relationships. The Company believes that this strategy, together with the successful performance under existing contracts has led to additional long-term business from key existing customers and new customers. Pursuing Selective Acquisitions. The Company intends to pursue selective acquisitions and to add products and capabilities that are complementary to its existing operations. Priority is expected to be given to acquiring businesses whose products can be manufactured in the Company's existing facilities ("fold- in" acquisitions). The Company's operations are characterized by a relatively high level of operating leverage; therefore, such fold-in acquisitions should allow the Company to allocate costs across broader synergistic product lines and represent additional volume through the Company's existing facilities which should provide opportunities to improve profitability. 5 Expanding Internationally. The Company is considering the expansion of its operations in Europe. The primary motivation in a geographic expansion would most likely be to service the growth of its current customers' operations as they expand their production operations abroad. The Company was incorporated in Delaware in 1985, and its principal executive offices are located at 4232 Temple City Boulevard, P.O. Box 739, Rosemead, California 91770-1592 and its telephone number is (213) 283-7500. The Company operates through three operating subsidiaries: Hermetic, Glasseal and Sealtron. 6 THE RECAPITALIZATION Effective as of February 14, 1997, pursuant to a Stock Purchase and Sale Agreement (the "Recapitalization Agreement") dated as of December 23, 1996, HCC, Andrew Goldfarb and certain affiliates of Mr. Goldfarb and his family (collectively, the "Selling Stockholder"), certain members of management (together with the Selling Stockholder, the "Selling Group"), Windward Capital Associates, L.P. ("Windward") and certain entities Windward controls (collectively, with Windward, the "Windward Group") and Metropolitan Life Insurance Company ("MetLife") completed a recapitalization of the Company (the "Recapitalization"). The Windward Group is a group of related entities which make merchant banking investments pursuant to certain program agreements. In connection with the Recapitalization, among other things: (i) the Company entered into Credit Facilities, consisting of: (a) a $10 million five year Revolving Credit Facility (the "Old Revolving Credit Facility"), (b) a $30 million, five-year Tranche A Term Loan ("Term Loan A") and (c) a $30 million, six and one-half year Tranche B Term Loan ("Term Loan B" and together with the Old Revolving Credit Facility and Term Loan A, the "Old Credit Facilities"); (ii) HCC issued $19.3 million, net of discount, of 12% subordinated notes to the Windward Group and MetLife (the "Mezzanine Notes") along with accompanying shares of Common Stock and contingent anti-dilution warrants (together valued at $3.2 million and representing approximately 6% of the common equity of the Company on a fully diluted basis) for an aggregate consideration of $22.5 million (as more fully described herein, the Mezzanine Notes together with the accompanying equity, the "Mezzanine Units"); (iii) HCC repurchased a portion of the shares of Common Stock beneficially owned by the Selling Group for $93.5 million in cash, including the Deferred Amount (as defined herein), and $5 million in contingent subordinated notes (the "Contingent Notes") and the Selling Group retained 47,234 shares of Common Stock; (iv) the Windward Group purchased 87,721 shares of Common Stock from HCC for $32.5 million in cash; and (v) HCC repaid $21.4 million of its outstanding indebtedness. Immediately prior to the Recapitalization, the Selling Group owned 100% of the outstanding Common Stock. As a result of the Recapitalization, after giving effect to the redemption of the Mezzanine Units with the proceeds of the Offering, the Windward Group owns 65% of the outstanding Common Stock and the Selling Group (and certain other members of management) owns 35% of the outstanding Common Stock. THE REFINANCING On May 6, 1997, the Company issued $90.0 million in principal amount of Old Notes and used the proceeds of such issuance to, among other things, (i) repay 100% of the outstanding principal amount, together with all accrued but unpaid interest thereon, of each of Term Loan A and Term Loan B and (ii) repurchase all outstanding Mezzanine Units for $22.5 million, the initial purchase price thereof, together with accrued but unpaid interest on the Mezzanine Notes. In addition on May 6, 1997, the Company amended the Old Revolving Credit Facility to, among other things, increase the amount available thereunder from $10.0 million to $20.0 million (the Old Revolving Credit Facility, as so amended and in effect on the date hereof, the "Revolving Credit Facility"). THE EXCHANGE OFFER Securities Offered...... Up to $90.0 million principal amount of 10 3/4% Se- nior Subordinated Exchange Notes due 2007, which have been registered under the Securities Act. The terms of the New Notes and the Old Notes are identical in all material respects, except for certain transfer restrictions and registration rights relating to the Old Notes and except that, if the Exchange Offer is not consummated by November 3, 1997, additional in- terest will accrue on the Old Notes from and includ- ing November 3, 1997 until but excluding the date of consummation of the Exchange Offer payable in cash semiannually in arrears on May 15 and November 15, commencing November 15, 1997 at a rate of .50% per annum 7 (increasing at .50% per annum at the end of each 90- day period following November 3, 1997, but in no event will the additional interest exceed 2%). The Exchange Offer...... The New Notes are being offered in exchange for a like principal amount of Old Notes. The issuance of the New Notes is intended to satisfy obligations of the issuer contained in the Registration Rights Agreement. For procedures for tendering, see "The Ex- change Offer." Tenders, Expiration Date; Withdrawal....... The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1997, or such later date and time to which it is extended. The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Old Note not accepted for exchange for any reason will be re- turned without expense to the tendering holder thereof as promptly as practicable after the expira- tion or termination of the Exchange Offer. Certain Conditions to Exchange Offer......... The Company shall not be required to accept for exchange, or to issue New Notes in exchange for, any Old Notes and may terminate or amend the Exchange Of- fer if at any time before the acceptance of Old Notes for exchange or the exchange of the New Notes for such Old Notes certain events have occurred, which in the reasonable judgment of the Company, make it inadvisable to proceed with the Exchange Offer and/or with such acceptance for exchange or with such ex- change. Such events include (i) any threatened, in- stituted or pending action seeking to restrain or prohibit the Exchange Offer, (ii) a general suspen- sion of trading in securities on any national securi- ties exchange or in the over-the-counter market, (iii) a general banking moratorium, (iv) the com- mencement of a war or armed hostilities involving the United States and (v) a material adverse change or development involving a prospective material adverse change in the Company's business, properties, assets, liabilities, financial condition, operations, results of operations or prospects that may affect the value of the Old Notes or the New Notes. In addition, the Company will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for any such Old Notes, at any such time any stop or- der shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Inden- ture under the Trust Indenture Act of 1939. See "The Exchange Offer--Certain Conditions to the Exchange Offer." Federal Income Tax Considerations......... The exchange pursuant to the Exchange Offer should not result in gain or loss to the holders or the Com- pany for federal income tax pur- poses. See "Certain U.S. Federal Income Tax Considerations." Use of Proceeds......... There will be no proceeds to the Company from the ex- change pursuant to the Exchange Offer. Exchange Agent.......... IBJ Schroder Bank & Trust Company is serving as ex- change agent (the "Exchange Agent") in connection with the Exchange Offer. 8 CONSEQUENCES OF EXCHANGING OLD NOTES Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the provisions in the Indenture regarding transfer and exchange of the Old Notes and the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register Old Notes under the Securities Act. See "Description of the Notes--Registration Rights." Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties, the Company believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by holders thereof (other than any holder which is an "affiliate" of the Issuer within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such New Notes. However, the Company does not intend to request the SEC to consider, and the SEC has not considered, the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If any holder is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer such holder (i) could not rely on the applicable interpretations of the staff of the SEC and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes must acknowledge that such Old Notes were acquired by such broker- dealer as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. In addition, to comply with the state securities laws, the New Notes may not be offered or sold in any state unless they have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. The offer and sale of the New Notes to "qualified institutional buyers" (as such term is defined under Rule 144A of the Securities Act) is generally exempt from registration or qualification under the state securities laws. The Company has agreed, pursuant to the Registration Rights Agreement, subject to certain limitations specified therein, to register or qualify the New Notes for offer or sale under the Securities laws of such jurisdictions as any holder reasonably requests in writing. Unless a holder so requests, the Company currently does not intend to register or qualify the sale of the New Notes in any state where an exemption from registration or qualification is required and not available. See "The Exchange Offer--Consequences of Exchanging Old Notes" and "Description of the Notes--Registration Rights." 9 SUMMARY DESCRIPTION OF THE NEW NOTES The terms of the New Notes and the Old Notes are identical in all material respects, except for certain transfer restrictions and registration rights relating to the Old Notes and except that, if the Exchange Offer is not consummated by November 3, 1997, additional interest will accrue on the Old Notes from and including such date until but excluding the date of consummation of the Exchange Offer at a rate of .50% per annum (increasing at .50% per annum at the end of each 90-day period following November 3, 1997, but in no event will the additional interest exceed 2%). The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from May 6, 1997. Accordingly, if the relevant record date for interest payment occurs after the consummation of the Exchange Offer, registered holders of New Notes on such record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from May 6, 1997. If, however, the relevant record date for interest payment occurs prior to the consummation of the Exchange Offer registered holders of Old Notes on such record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from May 6, 1997. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. Securities Offered...... Up to $90.0 million aggregate principal amount of the Company's 10 3/4% Senior Subordinated Exchange Notes due 2007. Maturity Date........... May 15, 2007. Interest Payment Dates.. May 15 and November 15 of each year, commencing No- vember 15, 1997. Optional Redemption..... The Notes will not be redeemable prior to May 15, 2002 except that, until May 15, 2000, the Company may redeem, at its option, up to an aggregate of $20.0 million of the principal amount of the Notes at the redemption price set forth herein plus accrued inter- est to the date of redemption with the net proceeds of one or more Public Equity Offerings (as defined herein) if at least $70.0 million of principal amount of the Notes remain outstanding after each such re- demption. On or after May 15, 2002, the Notes are re- deemable at the option of the Company, in whole or in part, at the redemption prices set forth herein plus accrued interest to the date of redemption. Change of Control....... Upon the occurrence of a Change of Control, each Holder will have the right to require the Company to repurchase all or any part of such Holder's Notes at 101% of the principal amount of such Notes plus ac- crued and unpaid interest to the repurchase date. Ranking................. The Old Notes are, and the New Notes will be, senior subordinated unsecured obligations of the Company, and will be subordinate in right of payment to all existing and future Senior Indebtedness of the Company and pari passu to all existing and future Senior Subordinated Indebtedness of the Company. The Indenture will limit the incurrence of future indebtedness. 10 Guarantees.............. The payment of the principal of, premium and interest on the Notes is fully and unconditionally guaranteed on a senior subordinated basis by the Subsidiary Guarantors (as defined). The guarantees by the Sub- sidiary Guarantors will be subordinated to all exist- ing and future Senior Indebtedness of each such Sub- sidiary Guarantor, including the guarantees of such Subsidiary Guarantor under the Revolving Credit Fa- cility. See "Description of the Notes--Subsidiary Guarantees." Certain Covenants....... The Indenture limits the incurrence of additional in- debtedness by the Company and the Subsidiary Guaran- tors, the payment of dividends and distributions, the proceeds from certain asset sales and certain trans- actions with affiliates and contains certain other restrictive covenants affecting the Company and the Subsidiary Guarantors. See "Description of the Notes--Certain Covenants." Use of Proceeds......... The Company will not receive any proceeds from the Exchange Offer. The net proceeds of the Offering, which were approximately $86.3 million, were used primarily to (i) repay in full Term Loan A and Term Loan B totaling $60.0 million, (ii) redeem all of the Mezzanine Units for an aggregate redemption price of $22.5 million and (iii) provide for working capital and general corporate purposes. See "The Recapitalization," "Use of Proceeds" and "Description of Certain Indebtedness." Exchange Offer; Registration Rights.... Holders of New Notes are not entitled to any regis- tration rights with respect to the New Notes. Pursu- ant to the Registration Rights Agreement, the Company has agreed to file an Exchange Offer Registration Statement or, under certain circumstances, a Shelf Registration Statement. The Registration Statement of which this Prospectus is a part constitutes the Ex- change Offer Registration Statement. Under certain circumstances, certain Holders of Notes (including Holders who may not participate in the Exchange Offer or who may not freely resell New Notes received in the Exchange Offer) may require the Company to file, and cause to become effective, a shelf registration statement under the Securities Act, which would cover resales of the Notes by such Holders. See "Descrip- tion of the Notes--Registered Exchange Offer; Regis- tration Rights." RISK FACTORS Holders of Old Notes should consider carefully the information set forth under the caption "Risk Factors" and all other information set forth in this Prospectus before making a decision to tender their Old Notes in the Exchange Offer. 11 SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION The following summary consolidated historical financial information for each of the three years ended April 1, 1995, March 30, 1996 and March 29, 1997 has been derived from the audited consolidated financial statements of the Company contained elsewhere in this Prospectus. The unaudited pro forma consolidated financial information for the fiscal year ended March 29, 1997 reflects the effect of adjustments to the historical consolidated financial statements of the Company necessary to give effect to (i) the Recapitalization, (ii) the Offering and the use of proceeds therefrom and (iii) the other transactions as described in the notes below, and is based upon available information and certain assumptions that the Company believes are reasonable under the circumstances. The unaudited pro forma consolidated financial information is presented for comparative and informational purposes only and is not necessarily indicative of future results or of the results that would have been obtained had the transactions assumed therein been completed on the dates indicated. The information presented below should be read in conjunction with "Unaudited Pro Forma Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and related notes, all included elsewhere in this Prospectus. 12 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN MILLIONS, EXCEPT SHARE DATA AND RATIOS)
PRO FORMA FISCAL YEAR ENDED FISCAL ---------------------------------- YEAR ENDED APRIL 1, MARCH 30, MARCH 29, MARCH 29, 1995 1996 1997 1997 -------- --------- --------- ---------- STATEMENT OF OPERATIONS DA- TA: Net sales.................. $ 40.3 $ 52.2 $ 56.7 $ 56.7 Cost of goods sold......... 25.4 32.6 35.7 35.7 ------- ------- ------- ------- Gross profit............... 14.9 19.6 21.0 21.0 Selling, general and admin- istrative expenses........ 6.3 9.1 9.3 4.7 Non-recurring expense...... -- -- 10.0(/1/) -- ------- ------- ------- ------- Earnings from operations... 8.6 10.5 1.7 16.3 Interest expense........... (1.7) (1.9) (2.9) (10.7) Interest and other income.. 0.1 0.3 0.4 0.4 Other expense.............. (1.4)(/2/) -- -- -- ------- ------- ------- ------- Earnings (loss) before taxes and extraordinary item...................... 5.6 8.9 (0.8) 6.0 Taxes (benefit) on earnings (loss).................... 1.7 3.2 (0.3) 2.1 ------- ------- ------- ------- Earnings (loss) before extraordinary item........ 3.9 5.7 (0.5) 3.9 Extraordinary loss on retirement of debt, net of tax benefit............... -- -- (1.2) --(/8/) ------- ------- ------- ------- Net earnings (loss)........ $ 3.9 $ 5.7 $ (1.7) $ 3.9 ======= ======= ======= ======= Earnings (loss) per share before extrordinary loss.. $ 7.76 $ 11.44 $ (1.46) $ 28.61 Extraordinary loss per share..................... -- -- (3.29) -- ------- ------- ------- ------- Net earnings (loss) per share..................... $ 7.76 $ 11.44 $(4.75) $ 28.61 ======= ======= ======= ======= Weighted average shares outstanding............... 496,166 494,968 360,585 134,955 ======= ======= ======= ======= OTHER FINANCIAL DATA: Gross margin............... 37.0% 37.5% 37.0% 37.0% Non-recurring charges(/3/). 2.1 4.9 14.6 -- EBITDA(/4/)................ 9.7 11.6 3.1 17.7 EBITDA margin.............. 24.2% 22.3% 5.3% 31.2% Depreciation and amortization.............. 1.1 1.1 1.4 1.4 Capital expenditures....... 1.2 2.0 3.4 3.4 Pro forma ratio of EBITDA to interest expense(/5/).. -- -- -- 1.4x Pro forma ratio of EBITDA- capital expenditures to interest expense.......... -- -- -- 1.1x Pro forma ratio of earnings to fixed charges(/6/)..... -- -- -- 1.6x Pro forma ratio of total debt to EBITDA............ -- -- -- 5.3x
AS OF MARCH 29, 1997 -------------------------- AS ADJUSTED FOR HISTORICAL THE OFFERING ---------- --------------- BALANCE SHEET DATA: Cash and cash equivalents........................... $ 6.8 $ 10.6 Working capital..................................... 7.6 14.3 Property, plant and equipment, net.................. 12.3 12.3 Total assets........................................ 116.1 122.5 Total debt(/7/)..................................... 82.4 93.1 Stockholders' deficit............................... (53.3) (57.7)
- ------- (1) Represents $10.0 million non-recurring expense for environmental remediation and other related costs. In connection with the Recapitalization, a $6.0 million escrow (the "Deferred Amount") was established primarily to fund the estimated after-tax cost (estimated tax benefit of $4.0 million) associated with these environmental matters. See "The Recapitalization." (2) Represents $1.4 million loss on sale of real property. (3) Non-recurring charges represent certain compensation and environmental costs which will not recur subsequent to the Recapitalization. Such charges are eliminated in the pro forma adjustments for the Recapitalization. (4) EBITDA represents net earnings before taking into consideration gains on change in accounting principle, extraordinary loss, taxes on earnings, interest income, other non-cash expense, interest expense, depreciation and amortization. EBITDA should not be considered by an investor as an alternative to earnings from operations, as an indicator of the operating performance of the Company or as an alternative to cash flows as a measure of liquidity. (5) Pro forma interest expense for the fiscal year ended March 29, 1997 is pro forma interest expense including amortization of deferred financing costs, and gives effect to the Recapitalization and the Offering as if they occurred on March 31, 1996. (6) For purposes of this ratio, earnings consists of earnings before income taxes. Fixed charges consists of interest expense and the portion of rents representative of an interest factor. The pro forma ratio of earnings to fixed charges is computed by adding earnings before income taxes and fixed charges and dividing by fixed charges. (7) Total debt represents total indebtedness of the Company including current maturities. (8) Excludes extraordinary loss on the debt retired from the proceeds from the Recapitalization. 13 RISK FACTORS Holders of Old Notes should carefully consider the following specific risk factors, as well as the other information set forth in this Prospectus, before tendering their Old Notes in the Exchange Offer. CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW NOTES Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the provisions in the Indenture regarding transfer and exchange of the Old Notes and the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register Old Notes under the Securities Act. See "The Exchange Offer--Consequences of Exchanging Old Notes." ABILITY TO SERVICE DEBT; SUBSTANTIAL LEVERAGE The Company has indebtedness which is substantial in relation to stockholders' equity, as well as interest and debt service requirements that are significant compared to its income and cash flow from operations. At March 29, 1997, on a pro forma basis, after giving effect to the assumptions described in "Unaudited Pro Forma Consolidated Financial Information," the Company's total indebtedness would have been $93.1 million. For the fiscal year ended March 29, 1997, on a pro forma basis (after giving effect to such assumptions), the Company's ratio of earnings to fixed charges would have been 1.3 to 1.0. This degree of leverage will have important consequences, including the following: (i) the ability of the Company to obtain additional financing for working capital, capital expenditures, debt service requirements or other purposes may be impaired; (ii) a substantial portion of the Company's cash flow from operations will be required to pay the Company's interest expense and principal repayment obligations and will not be available for the general corporate needs of the Company; (iii) the Company's leverage may limit its flexibility to adjust to changing market conditions and reduce its ability to compete against its less highly leveraged competitors; (iv) the Company may be more vulnerable in the event of a downturn in its business, in the automotive and aerospace industries or in the economy generally; and (v) to the extent that the Company incurs any borrowings under the Revolving Credit Facility, which borrowings will be at variable rates, the Company will be vulnerable to increases in interest rates. The maximum amount available under the Revolving Credit Facility is $20.0 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Description of Certain Indebtedness." The Company's ability to pay interest on the Notes and satisfy its other obligations will depend on its future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, many of which are beyond its control. Although the Company believes it will be able to pay its obligations as they come due, there can be no assurance that the Company will generate earnings in any future period sufficient to cover its fixed charges. In the absence of adequate operating results and cash flows, the Company might be required to adopt alternative strategies that may include reducing or delaying capital expenditures, disposing of material assets or operations, refinancing its indebtedness, including the Notes, or seeking additional equity capital to meet its debt service obligations. The Revolving Credit Facility and Indenture will contain covenants which restrict the Company's ability to take certain of the foregoing actions, including selling assets and using the proceeds therefrom. There can be no assurance as to the timing of such actions, the ability of the Company to consummate such actions under its existing financing agreements or the proceeds that the Company could realize therefrom and there can be no assurance that any such refinancing would be feasible at the time or that such proceeds would be adequate to meet the obligations then due. In addition, there can be no assurance that the Subsidiary Guarantors will generate sufficient cash flow to meet their respective obligations under the Subsidiary Guarantees. See "Description of Certain Indebtedness" and "Description of the Notes." 14 DEPENDENCE ON KEY CUSTOMERS AND CONTRACTUAL RELATIONSHIPS The demand for the Company's products is largely dependent on the automotive and aerospace industries. Sales to SDI, the Company's largest customer, accounted for approximately 27% of the Company's consolidated sales for the fiscal year ended March 29, 1997. Sales to the Company's ten largest customers accounted for approximately 47% of consolidated sales during the 1997 fiscal year. Approximately 70% of the Company's consolidated sales for fiscal year 1997 were to customers with which the Company had contractual agreements, sole source relationships, letters of intent or long-term purchase orders. A substantial portion of these business relationships are informal and certain of the Company's contractual arrangements may be terminated at will. Although the Company believes that its business relationship with SDI and its other major customers are currently mutually satisfactory, there can be no assurance that sales to SDI or the Company's other major customers will continue at the same level of volume or pricing or that one or more major customers will not terminate or seek to materially alter the terms of their relationship with the Company. While SDI currently outsources all of its GTMS products, there can be no assurance that SDI or other large customers will not shift their sourcing to other suppliers, develop in-house manufacturing capabilities, transfer production outside of North America or take other actions which could adversely affect the Company. In the past, SDI has attempted to find such second source suppliers and to secure a license from the Company to produce GTMS products internally. The loss of SDI as a customer or a substantial decrease in SDI's purchases from the Company, a material decrease in the demand for automobiles, automobile airbags or aircraft for which the Company supplies GTMS products or a material deterioration in the ability of the Company to obtain orders to supply GTMS products for automobiles or aircraft would have a material adverse effect on the financial condition and results of operations of the Company. A portion of the Company's sales in these markets are to customers who are government contractors. As such, compliance with various government regulations and provisions in such customers' contracts may be required. Certain violations of these regulations could result in termination of the Company's contracts with such customers, imposition of fines, and/or suspension or debarment from supplying component parts for government contracts. INDUSTRY RISKS AUTOMOTIVE Many of the Company's customers, including SDI, the Company's largest customer, are suppliers of products to the automotive industry. The automotive and automotive supply industries are highly cyclical and, in large part, dependent upon the overall strength of consumer demand for passenger cars and light trucks. The U.S. automotive industry has historically experienced significant fluctuations in demand, based on such factors as general economic conditions, interest rates and consumer confidence. In addition, strikes, lock-outs, work stoppages or other production interruptions in the automotive industry can affect demand for the Company's products. There can be no assurance that the automotive industry, for which the Company's customers supply airbags and seat belt pretensioners that incorporate products manufactured by the Company, will not experience downturns in the future. A decrease in overall consumer demand for passenger cars and light trucks would have a material adverse effect on the Company's financial condition and results of operations. In addition, the Company believes that entry into the airbag sub-assembly market by a growing number of component and system suppliers, combined with a greater percentage of lower priced airbags, such as side-impact airbags, has reduced pricing in the airbag industry. There can be no assurance that this trend will not continue. Moreover, products for which the Company produces component parts, including airbags and seat belt pretensioners, are subject to legislative regulation that is regularly reexamined and amended. While the Company has no reason to believe that federal regulations regarding automobile safety standards will be amended in the future so as to adversely impact (a) the use of airbags and seat belt pretensioners or (b) the manufacturing of such products in a manner that would adversely impact the Company, there can be no assurance that any such amendments will not be enacted or that such amendments would not have a material adverse effect on the financial condition and results of operations of the Company. 15 COMMERCIAL AND MILITARY AVIATION AND ELECTRONICS Many of the Company's products are used in a number of different applications in commercial and military aircraft and electronics. The aerospace and defense industry has been undergoing rapid consolidation over the last few years. Consolidations and combinations in the industry may eliminate customers from the market (including customers of the Company who are acquired by non-customers) or produce downward pricing pressures on component parts sales to the aerospace and defense industry. Downward pricing pressures on sales of component parts, the elimination of customers from the industry generally or the loss of the Company's customers may have a material adverse effect on the financial condition and results of operations of the Company. POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES The Company is subject to various federal, state and local environmental laws, ordinances and regulations, including those governing discharges into the air and water, the storage, handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contamination by hazardous substances, wastes or petroleum products, and the health and safety of employees ("Environmental Laws"). The soil and groundwater at some of the Company's facilities have evidence of contamination which may be as a result of either the Company's operations or other industrial activities in the area. In particular, a portion of the San Gabriel Valley in which the Company's principal operating facility in Rosemead, California is located was designated by the U.S. Environmental Protection Agency (the "EPA") as a Superfund site in 1984 pursuant to the Comprehensive Response, Compensation and Liability Act ("CERCLA" or "Superfund"). To facilitate cleanup and improve administration of the vast site, the EPA subdivided the valley into seven geographically distinct "operable units." The Company has been named as a potentially responsible party ("PRP") under CERCLA for the El Monte Operable Unit. Generally, liability under CERCLA is joint and several and remediation can extend to properties owned by third parties. In addition, the Company's facility in Avon, Massachusetts is subject to Massachusetts "Chapter 21E," the state's hazardous site cleanup program. In connection with the ownership and operation of such properties, the Company may be liable under Environmental Laws, including CERCLA, for the cost of remediation or removal of such contamination, as well as certain other related costs, including governmental penalties and claims by third parties for personal injury and property damage. In connection with the Recapitalization, the Selling Group has agreed to indemnify the Company with respect to the after-tax costs of certain environmental liabilities and certain funds were placed in escrow to secure indemnification obligations, including environmental indemnification, of the Selling Group. Although the Company believes, based upon the analysis of environmental engineering consultants, that such escrowed funds are adequate to satisfy these environmental matters, there can be no assurance that the expenditures ultimately required for resolution of these matters will not exceed either the amount escrowed or the total indemnification obligation. In addition, the Company has agreed to indemnify the Selling Group for such environmental claims in excess of $30.0 million. Moreover, future events, such as new information, changes in existing Environmental Laws or their interpretation, and more vigorous enforcement by regulatory authorities, may give rise to additional expenditures, compliance requirements or liabilities that could be material to the business and the results of the operations of the Company. See "The Recapitalization" and "Business--Environmental Matters." TECHNOLOGICAL RISK The use of the products manufactured by the Company, including those used in airbags, are subject to the risk of technological change. The airbag industry represents a competitive and constantly changing environment with many large global companies competing for market share with evolving products and new technologies. Sales to the automotive industry represent approximately 41% of the Company's sales; a substantial portion of which are sales related to airbags. Virtually all airbag initiators used in the U.S. and some in Europe incorporate a glass-to-metal, hermetic seal which protects the initiator from temperature extremes, electromagnetic interference, moisture and other forms of environmental stress. Less expensive 16 plastic initiators are available, but to date have had limited impact in the U.S. because plastic initiators have not met performance specifications currently demanded by U.S. auto makers. Plastic initiators may, however, capture a larger portion of the U.S. market for seat belt pretensioners. In Europe, plastic initiators have gained greater acceptance for use with airbag initiators and pretensioners due to their relative cost. In the United States, a competitor of the Company's customers is introducing an initiator with less expensive plastic components, which does not use a GTMS, but which may have similar performance characteristics. Moreover, they and other competitors continue to seek to develop new plastics and new technology which will be able to match the performance standards of the Company's glass-to-metal seals. Although the Company does not believe that any existing plastic seals meet currently required U.S. performance standards, there can be no assurance that such a product would not be developed or that given the significant pricing pressure currently existing in the automotive industry, certain auto makers and auto parts suppliers might elect to use less expensive plastic seals. VERTICAL INTEGRATION OF INITIATOR SUPPLIERS The majority of the Company's business is a customized, niche business, requiring engineering and manufacturing complexity. However, the glass-to- metal seal being used in the airbag initiator is becoming more standardized, lending itself to a more automated manufacturing process. As pricing pressures increase throughout the airbag component industry and particularly with respect to initiators, initiator manufacturers may be inclined to vertically integrate to capture further margins and profitability. The vertical integration of the Company's customers could adversely affect the financial condition and results of operations of the Company. SUBORDINATION OF THE NOTES AND SUBSIDIARY GUARANTEES The Old Notes are, and the New Notes will be, subordinated in right of payment to all Senior Indebtedness of the Company, including all indebtedness under the Revolving Credit Facility. As of March 29, 1997, after giving effect to the Recapitalization, the Offering and the use of proceeds therefrom, the amount of Senior Indebtedness of the Company would have been approximately $3.1 million, and the Company would have had the ability to borrow up to an additional $20.0 million under the Revolving Credit Facility. Upon any payment or distribution of assets of the Company upon liquidation, dissolution, reorganization or any similar proceeding, the holders of Senior Indebtedness will be entitled to receive payment in full before the Holders of Notes are entitled to receive any payment. In addition, the Company may not make any payments in respect of the Notes during the continuance of a payment default under any Designated Senior Indebtedness (as defined herein). Moreover, if certain non-payment defaults exist under any Designated Senior Indebtedness, the Company may not make any payments in respect of the Notes for a specified period of time. The obligations of the Company under the Revolving Credit Facility are, subject to certain limitations, guaranteed by the Company's domestic wholly- owned operating Subsidiaries. The Subsidiary Guarantees are subordinated to Senior Indebtedness of each Subsidiary Guarantor to the same extent that the Notes are subordinated to Senior Indebtedness of the Company, and the ability to collect under any Subsidiary Guarantees may therefore be similarly limited. The obligations of the Company and its Subsidiaries, whether as borrower or guarantor, are collateralized under the Revolving Credit Facility by substantially all of each such person's present and future assets and any default thereunder could effectively permit the holders of Senior Indebtedness to control the Company's and its subsidiaries' cash and other assets which could indirectly prevent the Company from servicing its debt service obligations on other indebtedness, including the Notes. The Notes will be unsecured and, therefore, do not have the benefit of such collateral. If the Company becomes insolvent or is liquidated or if the indebtedness under the Revolving Credit Facility is accelerated, the lenders under the Revolving Credit Facility will be entitled to payment in full from the proceeds of the collateral prior to any payment to the Holders of the Notes. In such event, it is possible that there would be no assets remaining from which claims of the Holders of the Notes could be satisfied 17 or, if any assets remain, such assets may be insufficient to fully satisfy such claims. See "Description of the Notes--Ranking," "--Subsidiary Guarantees" and "--Certain Covenants." LACK OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON RESALES The New Notes are being offered to the holders of the Old Notes. The Old Notes were issued on May 6, 1997 to a small number of institutional investors and institutional accredited investors and are eligible for trading in the Private Offering, Resale and Trading through Automated Linkages (PORTAL) Market, the National Association of Securities Dealers' screenbased, automated market for trading of securities eligible for resale under Rule 144A. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for the remaining untendered Old Notes could be adversely affected. There is no existing trading market for the New Notes, and there can be no assurance regarding the future development of a market for the New Notes, or the ability of holders of the New Notes to sell their New Notes or the price at which such holders may be able to sell their New Notes. If such a market were to develop, the New Notes could trade at prices that are higher or lower than the initial offering price of the Old Notes depending on many factors, including prevailing interest rates, the Company's operating results and the market for similar securities. The Initial Purchasers have advised the Company that they currently intend to make a market in the New Notes. The Initial Purchasers are not obligated to do so, however, and any market-making with respect to the New Notes may be discontinued at any time without notice. Therefore, there can be no assurance as to liquidity of any trading market for the New Notes or that an active public market for the New Notes will develop. The Company does not intend to apply for listing or quotation of the New Notes on any securities exchange or stock market. Historically, the market for noninvestment grade debt has been subject to disruptions that have caused substantial volatility in the prices of such securities. There can be no assurance that any market that develops for the New Notes would not be subject to similar disruptions. Any such disruptions may have an adverse effect on Holders of the New Notes. CONTROLLING STOCKHOLDERS; OBLIGATIONS IN THE EVENT OF CHANGE IN CONTROL Of the outstanding capital stock of the Company, 65% is held by the Windward Group. Consequently, the Windward Group controls the Company. Pursuant to a Stockholders Agreement, the Windward Group has the right to elect six out of the Company's nine directors (with one of such directors being a designee of MetLife, a significant investor in the Windward Group). See "Securities Ownership of Certain Beneficial Owners and Management" and "Certain Relationships and Related Transactions--Stockholders Agreement." Upon a Change of Control, the Company is obligated to make an offer to purchase all outstanding Notes at a price equal to 101% of the principal amount of the Notes, plus accrued interest thereon. The Revolving Credit Facility will prohibit the Company from purchasing any Notes, and will also provide that the occurrence of certain Change of Control events with respect to the Company would constitute a default thereunder. In the event of a Change of Control, the Company must offer to repay all borrowings under the Revolving Credit Facility or obtain the consent of its lenders under the Revolving Credit Facility to make the purchase of the Notes. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute a default under the Indenture, which, in turn, would constitute a default under the Revolving Credit Facility. It should be noted that the transfers among the members of the Windward Group and the Investors therein would not cause a Change of Control. There can be no assurance that the Company will have the financial ability to purchase the Notes upon the occurrence of a Change of Control. There can be no assurance that the Company will be able to comply with all of its obligations under the Revolving Credit Facility and the Indenture. See "Description of the Notes-- Change of Control." 18 DEPENDENCE ON KEY PERSONNEL The Company's business is managed by a small number of key executive officers including certain members of the Selling Group, all of whom received payments (some of which were substantial) in the Recapitalization. The loss of the services of certain of these executives could have an adverse impact on the Company. There can be no assurance that the services of such personnel will continue to be made available. The Company has entered into employment arrangements with certain key executive officers who own, together with their affiliates, in the aggregate approximately 35% of the outstanding capital stock of HCC. See "The Recapitalization" and "Management." FRAUDULENT TRANSFER CONSIDERATIONS The proceeds of the Offering were used primarily to (i) refinance indebtedness incurred (the "Recapitalization Indebtedness") by the Company to finance the purchase of Common Stock in the Recapitalization and (ii) to repurchase the Mezzanine Units. Under relevant federal bankruptcy law or state fraudulent transfer laws, the Notes under the circumstances described below may be subject to avoidance or may be subordinated to existing or future indebtedness of the Company (in addition to the Senior Indebtedness to which the Notes are expressly subordinated). If a court in a suit by an unpaid creditor or representative of creditors, such as a trustee in bankruptcy or the Company as debtor-in-possession, were to find that after giving effect to the sale of the Notes or the incurrence of the Recapitalization Indebtedness and the application of the net proceeds therefrom either (a) the Company received less than a reasonably equivalent value or fair consideration for the issuance of the Notes or the Recapitalization Indebtedness (including by reason of the fact the proceeds therefrom were used to repurchase Common Stock and Mezzanine Units of the Company) and either (i) was insolvent at the time of such issuance or was rendered insolvent thereby, (ii) was engaged in business or transactions for which the assets remaining with the Company constituted unreasonably small capital or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay as such debts matured; or (b) the Company issued the Notes or incurred the Recapitalization Indebtedness with actual intent to hinder, delay or defraud its creditors, the court could avoid the Notes and order that all or part of any payments on the Notes be returned to the Company or to a fund for the benefit of its creditors, or subordinate the Notes to all other indebtedness of the Company or take other action detrimental to the holders of the Notes. In addition, the purchase of the stock in the Recapitalization was and the repurchase of the equity portion of the Mezzanine Units are subject to similar restrictions as those described above pursuant to applicable state law. The measure of insolvency for purposes of the foregoing varies based upon the law of the jurisdiction applied. Generally, however, an entity would be considered insolvent if the sum of its debts (including contingent liabilities) is greater than all of its property at a fair valuation, or if the present fair saleable value of its assets is less than the amount that will be required to pay its probable liability on its existing debts (including contingent liabilities), as they become absolute and matured. In addition, an entity may be presumed insolvent under some fraudulent transfer laws if it is not generally paying its debts as they become due. The Company believes that, based upon forecasts and other financial information including the Pro Forma Consolidated Financial Information included elsewhere in this Prospectus, the Company was at the time of the Recapitalization, is at the time the Notes are issued, and will continue to be, solvent; will have sufficient capital to carry on its business; and will continue to be able to pay its debts as they mature. Accordingly, the Company believes that in a bankruptcy case or a lawsuit by creditors of the Company, none of the Notes should be held to have been issued in violation of applicable federal bankruptcy law or state fraudulent transfer laws. There can be no assurance, however, as to what standard a court would apply to determine whether the Company was "insolvent" as of the date the Notes were issued; or that, regardless of the method of valuation, a court would not determine that the Company was insolvent on such relevant dates. Nor can there be any assurance that a court would not determine, regardless of whether the Company was insolvent on the date the Notes were issued, that the payments constituted fraudulent transfers on another of the grounds listed above. 19 PRODUCTS LIABILITY EXPOSURE Although the Company has not suffered any losses to date by reason of judgments or settlements in product liability litigation and has never been named as a defendant or settled any such threatened claim against it, the Company may be exposed to products liability claims in the future relating to the performance of a GTMS product or the performance of a product in which the Company's GTMS product was a component part. The Company generally obtains indemnification from its customers and currently maintains insurance coverage for products liability claims. There can be no assurance that products liability claims will not be brought against the Company in the future, either by injured customers of an end product manufacturer who used a Company product as a component or by a direct purchaser from the Company. In addition no assurance can be given that indemnification from the Company's customers or coverage under insurance policies will be adequate to cover future products liability claims against the Company. Moreover, liability insurance is expensive, difficult to maintain and may be unobtainable in the future on acceptable terms. The amount and scope of any insurance coverage may be inadequate if a products liability claim is successfully asserted against the Company. 20 THE RECAPITALIZATION Effective as of February 14, 1997, pursuant to a Stock Purchase and Sale Agreement (the "Recapitalization Agreement"), dated as of December 23, 1996, HCC, Andrew Goldfarb and certain affiliates of Mr. Goldfarb and his family (collectively, the "Selling Stockholder"), certain members of management (together with the Selling Stockholder, the "Selling Group"), Windward Capital Associates, L.P. ("Windward") and certain entities Windward controls (collectively, with Windward, the "Windward Group") and Metropolitan Life Insurance Company ("MetLife") completed a recapitalization of the Company (the "Recapitalization"). The Windward Group is a group of related entities which make merchant banking investments pursuant to certain program agreements. In connection with the Recapitalization, among other things: (i) the Company entered into Credit Facilities, consisting of: (a) a $10 million five year Revolving Credit Facility (the "Old Revolving Credit Facility"), (b) a $30 million, five year Tranche A Term Loan ("Term Loan A") and (c) a $30 million, six and one-half year Tranche B Term Loan ("Term Loan B" and together with the Old Revolving Credit Facility and Term Loan A, the "Old Credit Facilities"); (ii) HCC issued $19.3 million, net of discount, of 12% subordinated notes due 2004 to the Windward Group and MetLife (the "Mezzanine Notes") along with 8,614 shares of Common Stock and contingent anti-dilution warrants to purchase 1,461 shares of Common Stock (together valued at $3.2 million and representing approximately 6% of the common equity of the Company on a fully diluted basis, together with the Mezzanine Notes, the "Mezzanine Units") pursuant to the Mezzanine Note Agreement (the "Mezzanine Note Agreement"), dated as of February 14, 1997 and the Recapitalization Agreement for an aggregate purchase price of $22.5 million; (iii) HCC repurchased a portion of the shares of Common Stock beneficially owned by the Selling Group for $93.5 million, including the Deferred Amount (as defined below), in cash (a portion of which was paid at closing and the remainder of which was deposited in escrow at closing and paid to the shareholders on April 1, 1997 in order to comply with applicable state law) and $5.0 million in contingent subordinated notes (the "Contingent Notes") and the Selling Group retained 47,234 shares of Common Stock; (iv) the Windward Group purchased 87,721 shares of Common Stock from HCC for $32.5 million in cash; and (v) HCC repaid $21.4 million of its outstanding indebtedness. Pursuant to the terms of the Mezzanine Note Agreement, the Warrants and the Recapitalization Agreement, HCC may, at any time on or prior to August 13, 1997, repurchase all, but not less than all, of its outstanding Mezzanine Units for $22.5 million (the aggregate original purchase price thereof) plus accrued interest, if any, on the Mezzanine Notes to the date of repurchase. In accounting for the Recapitalization, no fair value adjustments were made to the book value of the Company's assets and no goodwill was recognized. HCC used a portion of the proceeds from the Offering to repurchase the Mezzanine Units from the holders thereof. See "Use of Proceeds." Immediately prior to the Recapitalization, the Selling Group owned 100% of the outstanding Common Stock. As a result of the Recapitalization after giving effect to the repurchase of the Mezzanine Units, the Windward Group owns 65% of the outstanding Common Stock and the Selling Group (and certain other members of management) owns 35% of the outstanding Common Stock. The Contingent Notes issued to the Selling Group vest upon the achievement by the Company of certain performance thresholds and are also subject to immediate vesting upon certain events including (i) an initial public offering in which certain market capitalization criteria are met, (ii) a sale resulting in a Change in Control of the Company (as defined in the Contingent Notes) in which certain equity valuation criteria are met, or (iii) an initial public offering or a sale resulting in a Change in Control of the Company where the Company achieves a certain performance threshold. The Contingent Notes rank pari passu with the Mezzanine Notes and the indebtedness of the Company evidenced by such Contingent Notes if and when vested is subordinate to Senior Debt (as defined in the Contingent Notes) and the Notes. See "Description of Certain Indebtedness--Contingent Notes." The Recapitalization Agreement contains certain representations, warranties, covenants and indemnities of the parties thereto. In connection with the Recapitalization, HCC entered into a deferred 21 purchase price agreement dated, February 14, 1997 (the "Deferred Purchase Price Agreement") with the Selling Group, the Windward Group and MetLife. The Deferred Purchase Price Agreement provides for the escrow of $6 million (the "Deferred Amount") to secure a portion of the indemnification obligations to the Company, including obligations in respect of environmental matters, of the Selling Group. Any portion of the Deferred Amount which remains following resolution of certain environmental matters and settlement of other indemnification obligations in connection with the Recapitalization plus interest thereon will be paid to the Selling Group. The escrow will remain in effect until such time. See "Business--Environmental Matters." In addition, in connection with the Recapitalization, HCC also established certain management incentive programs, including a stock option plan (the "Option Plan"), a contingent bonus plan (the "Bonus Plan"), and employment agreements (the "Employment Agreements") to replace certain previous arrangements. See "Management--Executive Compensation--Employment Agreements." Prior to the Recapitalization, management received substantial cash payments in the form of salary and bonus. Such payments for the fiscal years ended April 1, 1995, March 30, 1996 and March 29, 1997 paid to the Company's senior executives are set forth herein under "Management--Executive Compensation." Following the Recapitalization, it is intended that such persons will receive substantially lower annual cash compensation, but will be entitled to participate in the Option Plan and the Contingent Bonus Plan, described below. Certain of such persons have also received Contingent Notes in the Recapitalization and are parties to employment agreements. The Option Plan provides for a grant from time to time to employees and directors of the Company of non-qualified stock options (the "Options"). Twenty percent of the Options vest annually subject to the satisfaction of certain annual performance criteria over five years, but are also subject to immediate vesting upon a Change of Control so long as the Windward Group realizes a specified compounded annual rate of return. The remaining Options vest immediately upon a Change of Control where the Windward Group realizes a certain rate of return. In addition, regardless of whether the performance criteria are achieved, all Options, including the performance based Options, will vest automatically on the seventh anniversary of the date on which the Option Plan was adopted. See "Management--Option Plan." Pursuant to the terms of the Bonus Plan, the contingent bonuses vest upon the satisfaction by the Company of certain performance criteria and are also subject to immediate vesting upon certain events including (i) an initial public offering where certain market capitalization criteria are met, (ii) a sale resulting in a Change in Control of the Company (as defined in the Bonus Plan) where certain equity valuation criteria are met, or (iii) an initial public offering or a sale resulting in a Change in Control of the Company where the Company satisfies certain performance criteria within certain time periods. See "Management--Contingent Bonus Plan." In connection with the Recapitalization, HCC reimbursed the Windward Group and its affiliates for its expenses incurred in connection with the Recapitalization, including the fees and expenses due to financing sources and advisers and also reimbursed the Selling Group for certain of its expenses in connection with the Recapitalization. HCC also paid a fee to the purchasers of the Mezzanine Units of $500,000 in exchange for the right to repurchase the Mezzanine Units on or prior to August 13, 1997. HCC also entered into a Financial Advisory Services Agreement with Windward Capital Partners, L.P., an affiliate of Windward. See "Certain Relationships and Related Transactions." RECENT DEVELOPMENTS On June 20, 1997, the Company acquired substantially all of the assets and assumed certain liabilities of the Connector Industries of America division of Uni-Star Industries Inc., a glass-to-metal sealing business which competed with the Company. The purchase price included $2.1 million in cash and a contingent payment of $400,000 based upon the volume of business retained in the immediately subsequent 18 month period. 22 USE OF PROCEEDS The Company will not receive any proceeds from the Exchange Offer. The net proceeds received by the Company from the sale of the Old Notes after deduction of discounts and commissions and offering expenses were $86.3 million. The net proceeds of the Offering were used to (i) repay in full Term Loan A and Term Loan B which were incurred in connection with the Recapitalization to repurchase Common Stock in the Recapitalization (ii) redeem all of the Mezzanine Units issued in connection with the Recapitalization and (iii) provide for working capital and general corporate purposes. See "The Recapitalization." On May 6, 1997, the Company amended the Old Revolving Credit Facility to, among other things, increase the amount available thereunder from $10.0 million to $20.0 million. See "Description of Certain Indebtedness." Borrowings under Term Loan A due February 2002 and Term Loan B due August 2003 bore interest, at the Company's option, at rates based on LIBOR or the Base Rate (each as defined in the Credit Facilities). The weighted average interest rate under Term Loan A and Term Loan B as of February 14, 1997 was 9.75%. The Mezzanine Notes were subordinated notes of the Company due 2004 bearing an interest rate of 12%. The Company used the net proceeds of the Offering to redeem the Mezzanine Units which were owned 91% by Windward/Park HCC, L.L.C. (the Mezzanine Notes were held directly by MetLife, the sole member other than Windward of Windward/Park HCC, L.L.C.), 7% by Windward/Merban L.P. and 2% by Windward/Merchant, L.P. The sources and uses of funds in connection with the Offering were as follows:
(IN MILLIONS) SOURCES OF FUNDS: The Notes.................................................... $90.0 ----- Total sources.............................................. $90.0 ===== USES OF FUNDS: Repay Term Loan A............................................ $30.0 Repay Term Loan B............................................ 30.0 Redeem Mezzanine Units....................................... 22.5 Working capital.............................................. 3.8 Fees and expenses............................................ 3.7 ----- Total uses................................................. $90.0 =====
23 CAPITALIZATION The following table sets forth the actual capitalization of the Company as of March 29, 1997 and the pro forma capitalization of the Company as if the Offering (and the application of the proceeds therefrom) had taken place on such date. This table should be read in conjunction with the consolidated financial statements of the Company, together with the notes thereto, the "Unaudited Pro Forma Consolidated Financial Information," together with the notes thereto, and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
AS OF MARCH 29, 1997 ---------------------- AS ADJUSTED FOR THE HISTORICAL OFFERING ---------- ----------- (IN MILLIONS) Cash and cash equivalents............................. $ 6.8 $ 10.6 ====== ====== Revolving Credit Facility(/1/)........................ $ -- $ -- Term Loan A........................................... 30.0 -- Term Loan B........................................... 30.0 -- Mezzanine Notes....................................... 19.3 -- The Notes............................................. -- 90.0 Other indebtedness.................................... 3.1 3.1 ------ ------ Total debt.......................................... 82.4 93.1 Total stockholders' deficit(/2/)...................... (53.3) (57.7) ------ ------ Total capitalization.................................. $ 29.1 $ 35.4 ====== ======
- -------- (/1/) The Revolving Credit Facility represents a five-year $20.0 million committed facility. See "Description of Certain Indebtedness." (/2/) The pro forma stockholders' deficit is attributed to the following adjustments:
AS ADJUSTED FOR THE OFFERING ------------- (IN MILLIONS) Historical stockholders' deficit............................... $(53.3) Write-off of deferred financing costs, net of tax benefit(a)... (1.2) Repurchase of stock (Mezzanine Units).......................... (3.2) ------ Pro forma stockholders' deficit................................ $(57.7) ======
- -------- (a) These costs will be charged against earnings in the first quarter of fiscal 1998. In accounting for the Recapitalization, no fair value adjustments were made to the book value of the Company's assets and no goodwill was recognized. 24 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated balance sheet gives effect to the Offering as if it was consummated on March 29, 1997 and the unaudited pro forma consolidated statement of earnings assumes that the Recapitalization and the Offering occurred at the beginning of the fiscal year ended March 29, 1997. Pursuant to the Recapitalization, which occurred on February 14, 1997: (i) the Company entered into a credit facility consisting of a $10.0 million five year Revolving Credit Facility, a $30.0 million Term Loan A and a $30.0 million Term Loan B; (ii) HCC issued $19.3 million, net of discount, in Mezzanine Notes to the Windward Group and Metlife, along with accompanying shares of Common Stock and contingent anti-dilution warrants (together valued at $3.2 million) for an aggregate consideration of $22.5 million; (iii) HCC redeemed a portion of the shares of its Common Stock owned by the Selling Group for $93.5 million in cash, including the Deferred Amount, and $5.0 million in contingent subordinated notes; (iv) the Windward Group purchased shares of Common Stock from the Company for $32.5 million in cash; and (v) HCC repaid $21.4 million of its outstanding indebtedness. In connection with the Offering, which occurred on May 6, 1997, the Company repaid all outstanding amounts under Term Loan A and Term Loan B and repurchased the Mezzanine Notes. The unaudited pro forma consolidated financial statements are not necessarily indicative of the results that would have occurred if the foregoing transactions had been consummated as of the indicated dates or which may occur in the future. The unaudited pro forma consolidated financial statements should be read in conjunction with the historical audited consolidated financial statements of HCC Industries Inc. and Subsidiaries and the related notes thereto and the "Selected Consolidated Historical Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operation", included elsewhere in this Prospectus. 25 PRO FORMA CONSOLIDATED BALANCE SHEET AS OF MARCH 29, 1997 (UNAUDITED)
PRO FORMA FOR THE HISTORICAL ADJUSTMENTS OFFERING ---------- ----------- --------- (IN THOUSANDS) CURRENT ASSETS: Cash and cash equivalents.................. $ 6,841 86,300 (a) $ 10,641 (82,500)(b) Restricted cash............................ 69,282 69,282 Trade accounts receivable.................. 6,904 6,904 Inventories................................ 4,376 4,376 Prepaid and deferred income taxes.......... 533 650 (c) 1,183 Other current assets....................... 223 223 -------- -------- Total current assets...................... 88,159 92,609 PROPERTY, PLANT AND EQUIPMENT, NET......... 12,264 12,264 OTHER ASSETS: Excess of purchase price over net assets acquired.................................. 4,507 4,507 Deferred financing costs, net.............. 1,827 (1,827)(c) 3,700 3,700 (a) Deferred income taxes...................... 3,269 3,269 Restricted cash............................ 6,039 6,039 Other...................................... 76 76 -------- -------- TOTAL ASSETS.............................. $116,141 $122,464 ======== ======== CURRENT LIABILITIES: Notes payable and current portion of long- term debt................................. $ 3,537 (2,300)(b) $ 1,237 Accounts payable........................... 2,553 2,553 Accrued liabilities........................ 5,193 5,193 Due to stockholders........................ 69,282 69,282 -------- -------- Total current liabilities................. 80,565 78,265 LONG-TERM LIABILITIES: Long-term debt, net of current portion..... 78,916 90,000 (a) 91,863 (77,053)(b) Other long-term liabilities................ 10,000 10,000 -------- -------- Total liabilities......................... 169,481 180,128 -------- -------- STOCKHOLDERS' DEFICIT: Common stock............................... 14 14 Additional paid-in capital................. -- -- Deficit.................................... (53,354) (3,147)(b) (57,678) (1,177)(c) -------- -------- Total stockholders' deficit................ (53,340) (57,664) -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT.................................. $116,141 $122,464 ======== ========
The accompanying notes are an integral part of these pro forma financial statements. 26 PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR ENDED MARCH 29, 1997 (UNAUDITED)
PRO FORMA FOR THE RECAPITALIZATION HISTORICAL ADJUSTMENTS AND THE OFFERING ---------- ----------- ---------------- (IN THOUSANDS, EXCEPT SHARE DATA) Net sales............................ $56,683 $56,683 Cost of goods sold................... 35,729 (26)(d) 35,703 ------- ------- Gross profit........................ 20,954 20,980 Selling, general and administrative expenses............. 9,308 (4,562)(e) 4,746 Non-recurring expense................ 10,000 (10,000)(d) -- ------- ------- Earnings from operations............ 1,646 16,234 Other income (expense): Interest and other income........... 479 479 Interest expense.................... (2,946) 2,409 (f) (10,707) (10,170)(h) ------- ------- Earnings (loss) before taxes and extraordinary item................. (821) 6,006 Taxes (benefit) on earnings (loss)... (293) 2,437 (g) 2,144 ------- ------- Earnings (loss) before extraordinary item............................... (528) 3,862 Extraordinary loss on retirement of debt, net of tax benefit............ (1,186) 1,186(i) -- ------- ------- Net earnings (loss)................. $(1,714) 3,862 ======= ======= Earnings (loss) per share before extraordinary loss.................. $ (1.46) $ 28.61 Extraordinary loss per share......... (3.29) -- ------- ------- Net earnings (loss) per share........ $ (4.75) $ 28.61 ======= ======= Weighted average shares outstanding.. 360,585 134,955 ======= =======
The accompanying notes are an integral part of these pro forma financial statements. 27 NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (a) To record proceeds from issuance of $90.0 million of senior subordinated notes, net of $3.7 million in financing costs from the Offering. (b) To reflect payment of Term Loan A and Term Loan B and repurchase of Mezzanine Units issued in connection with the Recapitalization as follows: Recorded amount of debt: Current............................................................. $ 2,300 Noncurrent.......................................................... 77,053 Purchase of stock and warrants........................................ 3,147 -------- $ 82,500 ========
(c) To write off debt issuance costs on debt retired with proceeds from the Offering as follows: Write-off of debt issuance costs................................. $ 1,827 Less tax benefit................................................. (650) ------- $ 1,177 =======
(d) To reverse environmental accruals which are primarily funded by the Deferred Amount, consisting of $6.0 million in restricted cash. (e) To reverse compensation paid to Selling Group and certain members of management in excess of amounts to be paid under new employment agreements and bonus plan. (f) To reverse interest expense, amortization of discount and financing costs related to indebtedness retired with proceeds from the Recapitalization and the debt incurred in connection with the Recapitalization. (g) To adjust taxes on earnings based on the effective tax rate for the period. (h) To record interest expense and amortization of financing costs related to the issuance of the Notes. The Notes accrue interest at 10.75%. The financing costs are amortized over a ten year period. (i) Excludes extraordinary loss on the debt retired from the proceeds from the Recapitalization and the Offering. 28 SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION The following selected consolidated historical financial information for each of the five years ended April 3, 1993, April 2, 1994, April 1, 1995, March 30, 1996 and March 29, 1997 has been derived, in part, from the audited consolidated financial statements of the Company included elsewhere in this Prospectus. The information presented below 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 related notes thereto, all included elsewhere in this Prospectus.
FISCAL YEAR ENDED ------------------------------------------------- APRIL 3, APRIL 2, APRIL 1, MARCH 30, MARCH 29, 1993 1994 1995 1996 1997 -------- -------- -------- --------- --------- (IN THOUSANDS, EXCEPT SHARE DATA AND RATIOS) STATEMENT OF OPERATIONS DA- TA: Net sales.................. $28,765 $29,663 $40,307 $52,207 $ 56,683 Cost of goods sold......... 20,432 20,458 25,423 32,562 35,729 ------- ------- ------- ------- -------- Gross profit............... 8,333 9,205 14,884 19,645 20,954 Selling, general and admin- istrative expenses........ 5,259 5,364 6,274 9,107 9,308 Non-recurring expense(/1/). -- -- -- -- 10,000 ------- ------- ------- ------- -------- Earnings from operations... 3,074 3,841 8,610 10,538 1,646 Interest and other income.. 314 646 136 279 479 Interest expense........... (1,985) (1,893) (1,715) (1,924) (2,946) Other expense (/2/)........ -- -- (1,369) -- -- ------- ------- ------- ------- -------- Earnings (loss) before tax- es, change in accounting principle, and extraordi- nary loss................. 1,403 2,594 5,662 8,893 (821) Taxes (benefit) on earn- ings...................... 660 1,140 1,810 3,230 (293) ------- ------- ------- ------- -------- Earnings (loss) before change in accounting principle and extraordinary loss........ 743 1,454 3,852 5,663 (528) Change in accounting prin- ciple (/3/)............... -- 1,782 -- -- -- Extraordinary loss, net of tax (/8/)................. -- -- -- -- (1,186) ------- ------- ------- ------- -------- Net earnings (loss)........ $ 743 $ 3,236 $ 3,852 $ 5,663 $ (1,714) ======= ======= ======= ======= ======== Earnings (loss) per share before change in accounting principle and extraordinary loss........ $ 1.44 $ 2.83 $ 7.76 $ 11.44 $ (1.46) Change in accounting prin- ciple per share........... -- 3.46 -- -- -- Extraordinary loss per share..................... -- -- -- -- (3.29) ------- ------- ------- ------- -------- Net earnings (loss) per share..................... $ 1.44 $ 6.29 $ 7.76 $ 11.44 $ (4.75) ======= ======= ======= ======= ======== Weighted average shares outstanding............... 514,280 514,280 496,166 494,968 360,585 ======= ======= ======= ======= ======== BALANCE SHEET DATA (AT PE- RIOD END): Total assets............... $24,586 $23,819 $27,061 $33,668 $116,141 Working capital............ 1,142 2,403 5,541 10,387 7,594 Long-term debt, less cur- rent maturities........... 11,158 11,848 9,846 9,811 78,916 Stockholders' equity (defi- cit)...................... 2,471 5,707 9,197 14,885 (53,340) OTHER FINANCIAL DATA: Capital expenditures....... 224 547 1,155 2,032 3,369 Depreciation and amortiza- tion...................... 940 989 1,138 1,123 1,384 Non-recurring charges (/4/)..................... -- 583 2,100 4,916 14,588 EBITDA (/5/)............... 4,014 4,830 9,748 11,661 3,030 EBITDA margin.............. 14.0% 16.3% 24.2% 22.3% 5.3% Ratio of EBITDA to interest expense................... 2.0x 2.6x 5.7x 6.1x 1.0x Ratio of earnings to fixed charges (/6/)............. 1.7x 2.4x 4.3x 5.6x --(/7/) Cash flows provided by (used in): Operating activities...... 2,185 100 5,696 5,062 1,810 Investing activities...... (164) (489) 136 (615) (1,768) Financing activities...... (2,908) 97 (2,520) (1,424) 152
- -------- (/1/) Represents $10.0 million non-recurring expense for environmental remediation and other related costs. In connection with the Recapitalization, a $6.0 million escrow was established primarily to fund the estimated after-tax cost (estimated tax benefit of $4.0 million) associated with these environmental matters. 29 (/2/) Represents loss on sale of real property. (/3/) Represents gain on cumulative effect of change in accounting principle (SFAS 109). (/4/) Non-recurring charges represent certain compensation and environmental costs which will not recur subsequent to the Recapitalization. (/5/) EBITDA represents net earnings before taking into consideration gain on change in accounting principle, extraordinary loss, taxes on earnings, interest income, other non-cash expense, interest expense, depreciation and amortization. EBITDA should not be considered by an investor as an alternative to earnings from operations, as an indicator of the operating performance of the Company or as an alternative to cash flows as a measure of liquidity. (/6/) For purposes of this ratio, earnings consist of earnings before income taxes. Fixed charges consist of interest expense and the portion of rents representative of an interest factor. The ratio of earnings to fixed charges is computed by adding earnings before income taxes and fixed charges and dividing by fixed charges. (/7/) The Company's earnings were insufficient to cover interest expense and fixed charges for the fiscal year ended March 29, 1997. The dollar amount of the deficiency was $821,000. (/8/) Represents loss on retirement of debt, net of tax benefit. 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL 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 of the Company and the "Unaudited Pro Forma Consolidated Financial Information" and the related notes thereto included elsewhere in this Prospectus. OVERVIEW The Company is the largest custom manufacturer of high precision hermetically sealed electronic connection devices in the United States. High precision hermetic seals are used primarily to permit the flow of electricity across a barrier which is used to separate different atmospheric media (such as gas or liquid to air or vacuum) existing on opposite sides of the barrier. A hermetic seal is generally accomplished through the creation of a GTMS. The Company's GTMS products are custom designed for specific applications to meet prescribed levels of performance in terms of pressure, temperature and vibration. Hermetically sealed components are found in the electronic equipment used in automobiles, airplanes, process control devices, military equipment and vehicles, electronic sensors, medical devices and testing equipment, petrochemical related equipment, telecommunications equipment and industrial process and control applications. The Company believes it is a leading supplier of GTMS products to each of the industries that it supplies. The Company estimates that the total market for hermetic seals is $600 million, of which approximately half of the market services high-end custom applications in which the Company competes. The market for custom manufactured hermetically sealed products is extremely fragmented, with no other competitor offering the same breadth of products as the Company. The Company has been an industry leader in the manufacture of glass-to-metal seals since it developed its technology in 1945. While a substantial portion of the Company's growth in the last several years has come from sales to the automotive industry, the Company has also recognized consistent growth in its sales of GTMS products to the aerospace, petrochemical and general industrial markets. The Company believes that its commitment to provide consistent, high quality products and customer service, flexible manufacturing and custom designed products at competitive prices, forms the basis for its strong and diversified customer relationships. The Company works closely with its customers to jointly develop and design new products and to improve the performance and lower the cost of existing products. The Company shares product development and enters into teaming arrangements with its key customers to further strengthen and broaden its relationships. The Company believes that this strategy, together with the successful performance under existing contracts has led to additional long-term business from key customers and new customers. The Company's products are sold primarily in North America (95% of fiscal year 1997 sales) and Europe (5% of fiscal year 1997 sales). Approximately 70% of the Company's consolidated sales for fiscal 1997 are to customers with which the Company has contractual agreements, sole source relationships, letters of intent or long-term purchase orders. See "Risk Factors--Dependence on Key Customers and Contractual Relationships." The Company's sales have grown at a compound annual growth rate of 15% over the last five years and expanded at 24% annually from 1994 to 1997. Approximately 59% of the Company's sales for fiscal 1997 are to non- automotive industries, principally to the aerospace, petrochemical and general industrial markets. These sales are made to a broad customer base and represent a diverse product mix. While many of these customers are large companies, there are no significant concentrations of customers, products or programs. 31 The Company's non-automotive business is usually not governed by long-term commitments with established prices. The Company believes the trend within its customer base is toward placing more emphasis on product quality and delivery and relatively less emphasis on pricing. Price has generally been a less significant competitive factor than the quality and design of the GTMS because 1) the GTMS cost is typically a small percentage of the total cost of the end products in which they are used, 2) the importance of the uses to which many of the Company's products are put and 3) the growing trend among OEMs to seek long-term partnerships with fewer core suppliers. Historically, as suppliers have increased their prices for goods and services provided to the Company, the Company has been able to pass the increase on to customers by an amount sufficient to prevent any material deterioration in the Company's operating margins. Over the last five years, though, the Company's costs and pricing have been relatively stable. A large part of the Company's sales to the automotive sector are governed by long-term contracts. These contracts generally have established prices with decreases in each succeeding year and certain volume discounts. The Company believes that the scheduled price decreases will be offset by the efficiencies it expects to achieve from higher production levels and its ability to continually improve its production processes. The Company's improvement in gross margin is due to the leveraging of its fixed production costs over a larger sales base (i.e. improved operating leverage) and improved production efficiencies due to increased automation and vertical integration of the Company's production processes. Selling, general and administrative expenses ("S,G&A") have generally increased during the periods primarily as a result of increased compensation costs. Underlying S,G&A expenses (excluding certain compensation costs that will not recur after the Recapitalization) have remained relatively stable despite the Company's significant increase in sales due to the increased percentage of automotive sales (which are not subject to sales commissions) and to the nominal additional administrative overhead necessary to manage the Company's operations. RESULTS OF OPERATIONS (IN MILLIONS)
Fiscal Year ---------------------------------------------------- 1995 Percent 1996 Percent 1997 Percent ------ ------- ------ ------- ------ ------- Net sales................. $ 40.3 100.0% $ 52.2 100.0% $ 56.7 100.0% Gross profit.............. 14.9 37.0% 19.6 37.5% 21.0 37.0% Selling, general and administrative expenses.. 6.3 15.6% 9.1 17.4% 9.3 16.4% Non-recurring expense..... -- -- -- -- 10.0 17.6% Earnings from operations.. 8.6 21.3% 10.5 20.1% 1.6 2.8% Other income/expense...... (3.0)(/1/) 7.4% (1.6) 3.1% (2.5) 4.4% Extraordinary loss(/2/)... -- -- -- -- (1.2) 2.1% Net earnings (loss)....... $ 3.9 9.7% $ 5.7 10.9% (1.7) 3.0%
- -------- (/1/)Includes $1.4 million loss on sale of real property. (/2/)Represents extraordinary loss on retirement of debt, net of tax benefit. FISCAL 1997 COMPARED TO FISCAL 1996 Net Sales The Company's sales increased by approximately 8.6% or $4.5 million to $56.7 million for fiscal 1997 from $52.2 million for fiscal 1996. This increase was attributable to approximately equal dollar volume increases in the Company's automotive and non-automotive products. On the automotive side, shipments of airbag initiator products increased significantly due to increased volumes of existing programs. The increased initiator shipments were partially offset by scheduled price decreases on the Special Devices, Inc. ("SDI") initiator program 32 and the scheduled completion of an electronic sensor program. In non- automotive products, the Company experienced consistent growth in all of its aerospace, industrial and petrochemical products. Gross Profit Gross profit increased by approximately 7.1% or $1.4 million, to $21.0 million for fiscal 1997 from $19.6 million for fiscal 1996. Gross margin during this period decreased from 37.5% to 37.0%. The increase in gross profit was primarily attributable to the increased sales volume. The decrease in gross margin was primarily attributable to an increase in overtime labor costs associated with the relocation and expansion of Hermetic Seal's machine shop to a new facility during the year. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by approximately 2.2% or $0.2 million to $9.3 million for fiscal 1997 from $9.1 million for fiscal 1996. S,G&A expenses as a percent to sales decreased to 16.4% from 17.4% for the prior period. The $0.2 million increase in base S,G&A expenses reflects the higher costs of supporting the increased sales volume. The improvement in the percentage of S,G&A expenses to sales reflects the improved leverage on the fixed portion of the expenses. Earnings from Operations Operating earnings decreased by approximately 84.8% or $8.9 million to $1.6 million in fiscal 1997 from $10.5 million for the prior year. Operating margins for the period decreased from 20.1% in fiscal 1996 to 2.8% for fiscal 1997. The decrease in operating earnings and margin was attributable to the $10.0 million non-recurring expense recorded in fiscal 1997 related to estimated environmental remediation and other related costs (see "Business-- Environmental Matters"). The non-recurring expense was partially offset by the same factors that contributed to the increase in gross profit and improvements in S,G&A expenses as a percent to sales. Excluding this non-recurring expense, operating earnings increased by approximately 10.5% or $1.1 million to $11.6 million in fiscal 1997 from $10.5 million in fiscal 1996. Other Expense, net Other expense, net increased by approximately 56.3% or $0.9 million to $2.5 million in fiscal 1997 from $1.6 million for fiscal 1996. This increase was attributable to the increased interest expense of $1.0 million partially offset by increased interest income of $0.2 million. The higher interest costs were due, in part, to additional debt incurred to finance the Recapitalization and additional debt incurred to finance capital expenditures. The increased interest income of $0.2 million is the result of higher treasury balances in 1997. Net Earnings (Loss) Net earnings decreased by approximately $7.4 million to a $1.7 million loss for fiscal 1997 from net earnings of $5.7 million for fiscal 1996. The decrease in net earnings was attributable to the $10.0 million non- recurring expense, the increased debt service costs and extraordinary loss incurred in connection with the Recapitalization. Excluding the non-recurring expense, net earnings decreased by approximately 24.6% or $1.4 million to $4.3 million for fiscal 1997. 33 FISCAL 1996 COMPARED TO FISCAL 1995 Net Sales The Company's sales increased by approximately 29.5%, or $11.9 million to $52.2 million for fiscal 1996 from $40.3 million for fiscal 1995. This increase was attributable to approximately equal dollar volume increases in automotive and non-automotive products. Sales of automotive products increased by approximately 39% over the prior year. This increase was primarily due to substantially higher shipments on an electronic sensor program. Initiator sales increased only slightly in fiscal 1996 net of scheduled price decreases on the SDI initiator program. Non-automotive products exhibited consistent growth across all product categories. In total, sales of non-automotive products increased by approximately 25% in fiscal 1996 over the prior year. The Company believes this growth is a combination of market growth and increased market share. Gross Profit Gross profit increased by approximately 31.5% or $4.7 million, to $19.6 million for fiscal 1996 from $14.9 million for fiscal 1995. Gross margin during this period increased from 37.0% to 37.5%. This increase in gross profit was primarily attributable to the increased sales volume. The increase in gross margin is attributable to improved operating leverage on the higher sales volume and improving efficiencies due to increasing vertical integration. Raw material prices and labor costs have remained stable in both periods. The Company continued to invest in its machining operations to increase its manufacturing capacity and vertical integration. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by approximately 44.4% or $2.8 million to $9.1 million for fiscal 1996 from $6.3 million for fiscal 1995. S,G&A expenses as a percent to sales increased from 15.6% to 17.4%. This increase was primarily attributable to higher costs associated with compensation expenditures. Eliminating the compensation costs from the analysis reflects an increase in base expenses of 6.5% or $0.3 million to $4.9 million (1996) from $4.6 million (1995). As a percentage of sales, the base expenses declined from 11.4% to 9.4%. The $0.3 million increase in base S,G&A expenses reflects the higher costs of supporting the increased sales volume. The improvement in percentage to sales reflects the improved leverage on the fixed portion of the expenses. Earnings from Operations Operating earnings increased by approximately 22.1% or $1.9 million to $10.5 million for fiscal 1996 from $8.6 million for fiscal 1995. Operating margins for the period decreased from 21.3% for fiscal 1995 to 20.1% for fiscal 1996. The increase in operating earnings was attributable to the same factors that contributed to the increase in gross profit and gross margin and improvements in S,G&A expenses as a percent to sales. Other Expense, net Other expense, net decreased by approximately 46.7% or $1.4 million to $1.6 million for fiscal 1996 from $3.0 million for fiscal 1995. This decrease was primarily attributable to the non-recurring loss of $1.4 million incurred in fiscal 1995 on the sale of real property. 34 Net Earnings Net earnings increased by approximately 46.2% or $1.8 million to $5.7 million for fiscal 1996 compared to $3.9 million for fiscal 1995. Net margin for the period increased to 10.9% from 9.7% in the prior period. The increase in net earnings and net margin were attributable to the same factors contributing to the increase in gross profit and gross margin and improvements in S,G&A expenses as a percent to sales. LIQUIDITY AND CAPITAL RESOURCES Cash Flows FISCAL 1997 COMPARED TO FISCAL 1996 Net cash provided by operating activities was $1.8 million for fiscal 1997 compared to $5.1 million for fiscal 1996. The decrease of $3.3 million was primarily attributable to a decrease in earnings from operations of $0.2 million and net cash used in working capital of $3.1 million. The net cash used for working capital was primarily a result of an increase in other assets partially offset by a decrease in accounts receivable. Net cash used in investing activities was $1.8 million for fiscal 1997 compared to $0.6 million for fiscal 1996. The $1.2 million increase was primarily attributable to an increase in fixed asset additions. Net cash provided by financing activities was $0.2 million for fiscal 1997 compared to $1.4 million used in fiscal 1996. The increase of $1.6 million was primarily attributable to net cash proceeds received from the Recapitalization which included the repurchase of stock, sale of stock and issuance of long- term debt by the Company. FISCAL 1996 COMPARED TO FISCAL 1995 Net cash provided by operating activities was $5.1 million for fiscal 1996 compared to $5.7 million for 1995. This decrease of $0.6 million was primarily attributable to an increase in earnings from operations of $0.8 million offset by net cash used in working capital of $1.4 million. The net cash used for working capital was primarily for increases in accounts receivable and inventories needed to support the increased sales volume. Net cash used in investing activities was $0.6 million for fiscal 1996 compared to a nominal amount provided in 1995. This increase of $0.7 million was primarily attributable to cash proceeds received from the sale of real property in 1995. Net cash used in financing activities was $1.4 million for fiscal 1996 compared to $2.5 million for 1995. This decrease of $1.1 million was primarily attributable to a decrease in principal payments on long-term debt. Liquidity Subsequent to the Offering, the Company's liquidity needs should arise from working capital requirements, capital expenditures and debt service. Subsequent to the Offering, the Company's outstanding indebtedness is approximately $93.1 million, consisting of $90.0 million principal amount of the senior subordinated notes and $3.1 million of other borrowings. The Company amended the Revolving Credit Facility subsequent to the Offering to augment its liquidity requirements by increasing the size of the facility to $20.0 million. Debt Service Subsequent to the Offering, the Company has $90.0 million in senior subordinated note indebtedness. Interest expense will have a greater proportionate impact on net income in subsequent periods in comparison with the periods before the Recapitalization. The Company is not subject to any amortization requirements under the Notes prior to maturity. 35 Future Financing and Cash Flows The Company believes that cash flow from operations and the availability of borrowings under the Revolving Credit Facility will provide adequate funds for ongoing operations, planned capital expenditures and debt service during the term of such facility. To the extent certain performance thresholds with respect to the Contingent Notes and Contingent Bonuses are met, and such obligations become vested, the Company believes that cash flow from operations and the availability of borrowings will be sufficient to fund such obligations. Capital Expenditures The Company's historical capital expenditures have substantially resulted from investments in equipment to augment the Company's manufacturing capacity and implement its strategy of vertical integration. The Company's capital expenditures were $1.2 million, $2.0 million and $3.4 million for fiscal 1995, 1996 and 1997, respectively. The Company expenses approximately $0.6 million annually for plant and equipment maintenance. These maintenance costs are not treated as capital expenditures. Capital expenditures for fiscal 1998 are expected to relate principally to continuing investments in equipment to expand manufacturing capacity in machining, glass production, sealing and plating, as well as automation equipment to lower production costs on the high volume production lines. Expected capital expenditures for fiscal 1998 are approximately $3.5 million and will be financed through working capital and the Revolving Credit Facility. Recent Acquisition On June 20, 1997, the Company acquired substantially all of the assets and assumed certain liabilities of a glass-to-metal sealing company. The purchase price included $2.1 million in cash and a contingent payment of $400,000 based upon the volume of business retained in the immediately subsequent 18 month period. In its last fiscal year of operations, the acquired company generated sales of approximately $3.2 million. 36 THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), the Company will accept for exchange Old Notes which are properly tendered on or prior to the Expiration Date and not withdrawn as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City time, on , 1997; provided, however, that if the Company, in its sole discretion, has extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer is extended. As of the date of this Prospectus, $90.0 million aggregate principal amount of the Old Notes are outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about , 1997, to all holders of Old Notes known to the Company. The Company's obligation to accept Old Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth below under "--Certain Conditions to the Exchange Offer." The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for exchange of any Old Notes, by giving oral or written notice of such extension to the holders thereof as described below. During any such extension, all Old Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by the Company. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Old Notes tendered in the Exchange Offer must be in denominations of principal amount of $1,000 and any integral multiple thereof. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Old Notes not therefore accepted for exchange, upon the occurrence of any of the events specified below under "-- Certain Conditions to the Exchange Offer." The Company will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the Old Notes as promptly as practicable, such notice in the case of any extension to be issued by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. PROCEDURES FOR TENDERING OLD NOTES The tender to the Company of Old Notes by a holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to IBJ Schroder Bank & Trust Company, as Exchange Agent, at the address set forth below under "-- Exchange Agent" on or prior to the Expiration Date. In addition, either (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date, or (iii) the holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. 37 Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the Old Notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined below) in the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States (collectively, "Eligible Institutions"). If Old Notes are registered in the name of a person other than a signer of the Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly exercised by, the registered Holder with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Notes tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Old Notes not properly tendered or to not accept any particular Old Notes which acceptance might, in the judgment of the Issuer or its counsel, be unlawful. The Company also reserves the absolute right to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal is signed by a person or persons other than the registered holder or holders of Old Notes, such Old Notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the Old Notes. If the Letter of Transmittal or any Old Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers or corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. By tendering, each holder will represent to the Company that, among other things, the New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such New Notes, whether or not such person is the holder, and that neither the holder nor such other person has any arrangement or understanding with any person to participate in the distribution of the New Notes. In the case of a holder that is not a broker-dealer, each such holder, by tendering, will also represent to the Company that such holder is not engaged in, or intends to engage in, a distribution of the New Notes. If any holder or any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company, or is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution of such New Notes to be acquired pursuant to the Exchange Offer, such holder or any such other person (i) could not rely on the applicable interpretations of the staff of the SEC and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer 38 that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market- marking activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Company will accept, promptly after the Expiration Date, all Old Notes properly tendered and will issue the New Notes promptly after acceptance of the Old Notes. See "--Certain Conditions to the Exchange Offer." For purposes of the Exchange Offer, the Company shall be deemed to have accepted properly tendered Old Notes for exchange when, as and if the Company has given oral or written notice thereof to the Exchange Agent, with written confirmation of any oral notice to be given promptly thereafter. For each Old Note accepted for exchange, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. If the Exchange Offer is not consummated by November 3, 1997, the rate per annum at which the Old Notes will bear interest will be 11 1/4% per annum (increasing at .5% per annum at the end of each 90-day period following November 3, 1997, but in no event will the interest rate exceed 12 3/4%) from and including such date until but excluding the date of consummation of the Exchange Offer payable in cash semiannually in arrears on May 15 and November 15 commencing November 15, 1997. The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from May 6, 1997. Accordingly, if the relevant record date for interest payment occurs after the consummation of the Exchange Offer, registered holders of New Notes on such record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from May 6, 1997. If, however, the relevant record date for interest payment occurs prior to the consummation of the Exchange Offer registered holders of Old Notes on such record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from May 6, 1997. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely Book- Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount at maturity than the holder desired to exchange, such unaccepted or non-exchanged Old Notes will be returned without expenses to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry procedures described below, such non-exchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with 39 such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Book- Entry Transfer Facility, the Letter of Transmittal or facsimile thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at one of the addresses set forth below under "--Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. GUARANTEED DELIVERY PROCEDURES If a registered holder of the Old Notes desires to tender such Old Notes and the Old Notes are not immediately available, or time will not permit such holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent received from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "--Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes), and (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "--Procedures for Tendering Old Notes" above at any time on or prior to the Expiration Date. 40 CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, the Company shall not be required to accept for exchange, or to issue New Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer, if at any time before the acceptance of such Old Notes for exchange or the exchange of the New Notes for such Old Notes, any of the following events shall occur: (a) there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order of decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission, (i) seeking to restrain or prohibit the making or consummation of the (Exchange Offer or any other transaction contemplated by the Exchange Offer, or assessing or seeking any damages as a result thereof, or (ii) resulting in a material delay in the ability of the Company to accept for exchange or exchange some or all of the Old Notes pursuant to the Exchange Offer; or any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the Exchange Offer or any of the transactions contemplated by the Exchange Offer by any government or governmental authority, domestic or foreign, or any action shall have been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign, that in the sole judgment of the Company might directly or indirectly result in any of the consequences referred to in clauses (i) or (ii) above or, in the sole judgment of the Company, might result in the holders of New Notes having obligations with respect to resales and transfers of New Notes which are greater than those described in the interpretation of the SEC referred to on the cover page of this Prospectus, or would otherwise make it inadvisable to proceed with the Exchange Offer; or (b) there shall have occurred (i) any general suspension of or general limitation on prices for, or trading in, securities on any national securities exchange or in the over-the-counter market, (ii) any limitation by any governmental agency or authority which may adversely affect the ability of the Company to complete the transactions contemplated by the Exchange Offer, (iii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation by any governmental agency or authority which adversely affects the extension of credit or (iv) a commencement of a war, armed hostilities or other similar international calamity directly or indirectly involving the United States, or, in the case of any of the foregoing existing at the time of the commencement of the Exchange Offer, a material acceleration or worsening thereof; or (c) any change (or any development involving a prospective change) shall have occurred or be threatened in the business, properties, assets, liabilities, financial condition, operations, results of operations or prospects of the Company and its subsidiaries taken as a whole that, in the sole judgment of the Company, is or may be adverse to the Company, or the Company shall have become aware of facts that, in the sole judgment of the Company, have or may have adverse significance with respect to the value of the Old Notes or the New Notes; which in the sole judgment of the Company in any case, and regardless of the circumstances (including any action by the Issuer) giving rise to any event described above, makes it inadvisable to proceed with the Exchange Offer and/or with such acceptance for exchange or with such exchange. The foregoing conditions are for sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, the Company will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for any such Old Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939 (the "TIA"). 41 EXCHANGE AGENT IBJ Schroder Bank & Trust Company has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at one of the addresses set forth below. Questions~ and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: Delivery To: IBJ Schroder Bank & Trust Company, Exchange Agent By Overnight Courier or Hand: By Registered or Certified Mail: IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company One State Street P.O. Box 84 New York, New York 10004 Bowling Green Station New York, New York 100274-0084 Attention: Securities Processing Window Subcellar One (SC-1) Attention: Reorganization Operations Department By Facsimile: (212) 858-2611 Confirm by Telephone: (212) 858-2103 DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL. FEES AND EXPENSES The Company will not make any payment to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The estimated cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be $ . TRANSFER TAXES Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. CONSEQUENCES OF EXCHANGING OLD NOTES Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the provisions in the Indenture regarding transfer and exchange of the Old Notes and the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. 42 The Company does not currently anticipate that it will register Old Notes under the Securities Act. See "Description of the Notes--Registration Rights." Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties, the Company believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such New Notes. However, the Company does not intend to request the SEC to consider, and the SEC has not considered, the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If any holder is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the SEC and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." In addition, to comply with the state securities laws, the New Notes may not be offered or sold in any state unless they have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. The Offer and sale of the New Notes to "qualified institutional buyers" (as such term is defined under Rule 144A of the Securities Act) is generally exempt from registration or qualification under the state securities laws the Company currently does not intend to register or qualify the sale of the New Notes in any state where an exemption from registration or qualification is required and not available. 43 BUSINESS GENERAL The Company is the largest custom manufacturer of high precision hermetically sealed electronic connection devices in the United States. High precision hermetic seals are used primarily to permit the flow of electricity across a barrier used to separate different atmospheric media (such as gas or liquid to air or vacuum) existing on opposite sides of the barrier. The hermetic seals manufactured by the Company generally fall into four categories--terminals, headers, connectors and microelectronic packages. A "terminal" is a device characterized by having only a single contact pin, while a "header" has multiple contact pins inserted in a frame. A "connector" is a type of terminal or header which can be mechanically coupled to or uncoupled from another connection. A "microelectronic package" is a container for thick and thin film substrates onto which hybrid circuitry has been etched. The Company operates in the premium segment of the market by providing high precision glass-to-metal seals, custom designed to meet specific customer requirements. Each GTMS generally consists of a metal body or housing, metal contact pins, and an insulator fabricated from glass, ceramic or glass/ceramic mixtures. GTMS range in size from a two foot long, eight inch diameter cylindrical connector utilized for through-hull communication links for nuclear submarines, to a 40/1000 inch outside diameter (12/1000 inch inside diameter) implant to measure pressure in the heart chamber. The Company believes that it has been an industry leader in the design and manufacture of GTMS since it developed its GTMS process in 1945. The Company has developed over 75,000 different configurations, primarily for the following industries: (1) automotive (for use in, for example, the initiators in airbags and seat belt pretensioners); (2) aerospace and military electronics (for use in, for example, gyro guidance devices, flight instrumentation, jet engine controls, and space suit controls); (3) test and measurement (for use in, for example, temperature and pressure transducers, infrared detection instrumentation, electro-optical devices and fuel injection monitoring devices); (4) medical electronics (for use in, for example, pacemakers, kidney dialysis machines and devices for monitoring vital life signs); (5) telecommunications (for use in, for example, coaxial cables); and (6) energy (for use in, for example, oil drilling equipment and down-hole logging instrumentation and for conventional and nuclear electric power generating plants). Approximately 70% of the Company's consolidated sales for fiscal 1997 were to customers with which the Company had contractual agreements, sole source relationships, letters of intent or long-term purchase orders. A substantial portion of these business relationships are informal and certain of the Company's contractual arrangements may be terminated at will by the customer. See "Risk Factors--Dependence on Key Customers and Contractual Relationships." The Company's sales have grown at a compound annual growth rate of 15% over the last five years. While a substantial portion of the Company's growth over the last several years has come from sales to the automotive industry, particularly hermetically sealed connectors for use in airbag initiators, the Company has also recognized consistent growth in its sales of GTMS products to the aerospace, petrochemical and general industrial markets. EBIT and EBITDA margins have averaged 15% and 18%, respectively, over the last three years. The Company believes this has been the result of its commitment to customer service, development of close working relationships with many of its customers and the value-added nature of its products. COMPETITIVE STRENGTHS The Company believes that it has the following competitive strengths: Long-Term Customer Relationships. Many of the Company's customers, including SDI, TRW, Allied Signal, Halliburton and Schlumberger, have been customers for over ten years. The Company believes that 44 both automotive and aerospace OEMs continue to seek long-term partnerships with fewer core suppliers. The Company's relationships are strengthened by the fact that many of its arrangements with its customers provide for the Company to act as the sole source of supply for the customer. The Company estimates that approximately 70% of the Company's consolidated sales for fiscal year 1997 were from contractual agreements, sole source relationships, letters of intent or long-term purchase orders. Market Leadership. A number of the Company's products hold leading market positions in their respective niche markets. The Company currently believes that it produces hermetically sealed products for approximately 50% of the airbag initiators produced in the U.S. The Company believes, based upon long- term relationships with ICI and SDI, that it is well positioned to continue to increase its market share, as well as expand its sales internationally. Commitment to Quality and Service. The Company believes that its commitment to provide consistent, high quality products and services and flexible manufacturing and custom designed products at competitive prices, forms the basis for its strong and diversified customer relationships. The Company manufactures most of its parts to specific customer requirements. The Company utilizes Statistical Process Control, Design Failure Mode Effects Analysis, Process Failure Mode Analysis, and a strict adherence to complete manufacturing documentation in order to manufacture high quality products for internal use as well as external customer sales. The Company believes that its knowledge and use of these procedures give the Company a competitive advantage. Sealtron became registered to ISO 9001 in September 1996. Hermetic and Glasseal expect to be registered to ISO 9001 within twelve months and to be registered to QS 9000 (the automotive standard) within 24 months. Proprietary Technology. The Company operates in the automotive, aerospace and general industrial technologies markets in which products typically require sophisticated engineering and production techniques. The Company designs and manufactures new products to fulfill customer needs, and has developed proprietary manufacturing technology since its founding in 1945. The Company believes that this proprietary technology helps enable it to attract and retain customers who require customized, high tolerance products. The Company estimates that it has produced over 75,000 different variations of GTMS. Low Cost Operations. The Company believes that its extensive "in-house" capabilities and vertical integration are competitive advantages that have allowed it to become a low cost producer. By controlling the tolerance of the component parts, the Company has been able to reduce scrap and to increase the yields of its products. Furthermore, the Company is continually developing and assessing its programs designed to increase efficiency and enhance economies of scale in order to further reduce costs. Diverse Products and Customers. The Company has a diverse customer base, with sales of numerous product variations to approximately 1,200 customers in fiscal 1997. Sales to SDI, the Company's largest customer, accounted for approximately 27% of the Company's consolidated sales for the fiscal year ended March 29, 1997. Over the past several years, the Company has recognized consistent growth in sales of GTMS products to the automotive, aerospace and general industrial markets. BUSINESS STRATEGY The Company's strategy is to expand its business through: Focusing on Core Strengths. The Company continues to focus on what it believes are its core strengths and to invest in those businesses that are consistent with those strengths and which exhibit high growth potential. Core strengths include the timely custom design and manufacturing of high tolerance, high reliability components and the effective program management of long term contracts and supply agreements. Leveraging Customer Relationships. The Company works closely with its customers to jointly develop and design new products and to improve the performance and lower the cost of the Company's 45 customers' products. The Company has sole source supply contracts, shares product development, and enters into other teaming arrangements with its key customers to further strengthen and broaden its relationships. The Company believes that this strategy, together with the successful performance under existing contracts has led to additional long-term business from key existing customers and new customers. Pursuing Selective Acquisitions. The Company intends to pursue selective acquisitions and to add products and capabilities that are complementary to its existing operations. Priority is expected to be given to acquiring businesses whose products can be manufactured in the Company's existing facilities ("fold-in" acquisitions). The Company's operations are characterized by a relatively high level of operating leverage; therefore, such fold-in acquisitions should allow the Company to allocate costs across broader synergistic product lines and represent additional volume through the Company's existing facilities which should provide opportunities to improve profitability. Expanding Internationally. The Company is considering the expansion of its operations in Europe. The primary motivation in a geographic expansion would most likely be to service the growth of its current customers' operations as they expand their production operations abroad. INDUSTRIES The Company estimates the total size of the GTMS market to be $600 million, with approximately one-half estimated to be the specialized, high precision segments in which the Company competes. The market for high-end hermetically sealed products is extremely fragmented, with no other competitor offering the same breadth of products as the Company. The Company believes that its focus on the high-end, custom segment of the GTMS market enables it to achieve higher margins. The Company sells its products to four principal industries: (i) the automotive parts industry for use in airbag initiators, automotive crash sensors, climate control devices and anti-lock braking systems; (ii) the aerospace industry for use primarily in commercial and military aviation and electronics; (iii) general industry for use primarily in process control, and other industrial, medical and telecommunications applications; and (iv) the petrochemical industry, for use primarily in oil and gas downhole analysis equipment. See "Risk Factors--Industry Risks." Automotive The Company provides GTMS products used in initiators for airbag devices. At present, each airbag device requires at least one initiator (the device that deploys the airbag). The automotive airbag industry has undergone dynamic growth over the recent past stemming from increased consumer demand for automotive safety devices and federal regulations requiring such devices. Currently, regulations adopted by the National Highway Traffic Safety Administration require that airbags be the automatic frontal crash protection system used for both the driver and front passenger in at least 95% of passenger automobiles manufactured from September 1, 1996 to August 31, 1997 for sale in the U.S., and in 100% of passenger automobiles manufactured thereafter. For light trucks and vans, the regulations require that airbags be the automatic frontal crash protection system used for at least the driver in no less than 80% of light trucks and vans manufactured from September 1, 1997 to August 31, 1998 for sale in the U.S., and for both the driver and front passenger in 100% of light trucks and vans manufactured thereafter. From model years 1993 to 1995, worldwide unit installations of airbags grew from 9.0 million to 40.2 million units, according to EIU. Further, according to EIU worldwide airbag demand is expected to increase to 104 million units by 2005, a CAGR of 10% from 1995 to 2005. Growth in airbag installations is expected to continue beyond the turn of the century due to the full penetration of driver-side and passenger-side front-seat airbags and increased penetration of side impact and other types of airbags and increased rate of foreign installations. In addition to driver and passenger airbags, many auto makers are moving toward a full protection system which would also include side impact airbags and seat belt 46 pretensioners. These systems also require initiators. According to EIU, the domestic use of side airbags is projected to increase from zero units in 1995 to approximately 21 million units in 2005. Although not mandated by law, initiator-based safety systems are also employed in automobiles produced and sold in Europe and Asia, although fewer than in the U.S. The systems utilized in Europe and Asia include airbag systems similar to those in use in the U.S. and seat-belt pretensioners that employ initiators. While the majority of airbag initiators manufactured for use in cars outside the U.S. employ plastic initiators, there is a trend toward using GTMS in such products due to their increased reliability. Commercial and Military Aviation and Electronics The Company provides hermetic seals that are used for a number of different applications in commercial and military aviation and electronics, primarily to protect guidance and sensor devices from the effects of changes in atmospheric conditions. The Company believes that GTMS products are utilized in almost every model of commercial aircraft currently in production and its customers include essentially all major aerospace suppliers. The Company's sales to the aerospace industry are dependent to a certain extent on new construction of commercial and military aircraft. The Company competes with a number of different suppliers in this market, based on quality, delivery and price. According to The Boeing Company ("Boeing"), worldwide air travel is expected to grow 70% for the period 1995 to 2005, and at a CAGR of 5.1% over the period 1995 to 2015. Boeing also estimates total investment in new airplanes over this period at $1.1 trillion and expects the world fleet to grow from 11,066 airplanes in 1995 to 23,080 airplanes in 2015. General and Industrial The Company provides GTMS used in pressure and temperature transducers (sensors), industrial process control equipment, capacitor end-seals for electronic devices and other industrial, medical and telecommunications applications to a number of manufacturers such as Asea Brown Boveri Ltd. ("ABB"), Ametek Inc. ("Ametek"), Druck Holdings P.L.C. ("Druck"), The Foxboro Company ("Foxboro"), Kemet Corporation ("Kemet") and Sprague Technologies, Inc. ("Sprague"). The Company believes that its ability to help customers develop products to meet demanding specifications allow for significant opportunities within this market segment, including those customers not currently served by the Company's products. The Company also believes that the increased sophistication of equipment and increased level of automation being used in industrial applications will increase demand for GTMS products. Petrochemical The Company provides GTMS used for down-hole logging equipment in the oil and gas industry primarily under long-term contracts to oil field equipment and service companies such as Schlumberger, Halliburton and Baker-Hughes Incorporated ("Baker-Hughes"). The Company's sales to this industry during any period are somewhat dependent on the current level of exploration and drilling in the oil and gas industry and current demand for and price of crude oil. The Company believes that it is one of only two significant providers of GTMS to this industry. The Company expects that the trend toward more sophisticated measurement-while-drilling equipment in the petrochemical industry is likely to lead to more demand for the Company's products. CUSTOMERS AND APPLICATIONS In the past year, the Company has sold products to over 1,200 customers. Approximately 80% of the Company's consolidated sales are represented by the Company's top 88 customers. The Company's largest customer, SDI (a maker of airbag initiators), represented approximately 27% of consolidated sales for the fiscal year ended March 29, 1997. The Company's ten largest customers accounted for 47 approximately 47% of net sales for fiscal year 1997. Approximately 70% of the Company's consolidated sales for fiscal year 1997 were to customers with which the Company had contractual agreements, sole source relationships, letters of intent or long-term purchase orders. The Company only begins to manufacture products upon receipt of a purchase order. Approximately 41% of the Company's consolidated sales for fiscal year 1997 are to automotive parts suppliers, primarily makers of airbag initiators such as SDI and ICI. The Company's relationship with SDI includes a five-year contract through the year 1999 to produce at least 75% of SDI's GTMS for its initiators provided the Company maintains pricing and quality which are generally equivalent to or better than other suppliers. The Company believes that it currently provides nearly all of SDI's GTMS components. Pursuant to many of its long-term contracts the Company has the ability to renegotiate its prices if the Company experiences material cost increases for raw materials. See "Risk Factors--Dependence on Key Customers and Contractual Relationships." The following table sets forth the Company's principal end-user markets, certain applications for its products and certain of the Company's customers in fiscal year 1997.
End Markets Automotive Aerospace Industrial/Petrochemical - ----------- ---------- --------- ------------------------ Applications: Airbag Jet Engine Process Control Sensors Initiators Monitors Down Hole Drilling Sensors Crash Sensors Avionics Lithium Batteries Thermistors Fuel Gauge Telecommunication Airbag Pressure Indicators Switching Devices Switches Temperature Hybrid Circuit Packaging ABS Sensors Variable Speed De-icing Sensors Transmission Air Speed Controls Indicators - ------------------------------------------------------------------------------------------ Customers: SDI Allied Signal ABB ICI Rosemount Baker-Hughes TRW Aerospace Schlumberger Honeywell Halliburton Hughes Western Atlas Litton Kemet Eaton Sprague Sawtek Omni Rel Power Conversion, Inc. - ------------------------------------------------------------------------------------------ Specific example of Airbag initiator Temperature Sensors High pressure electrical product application: bulkheads for down-hole use (oil exploration) What the product does: Electric current Passes electric Carries electrical signals flows from crash current from between geological sensor through sensors that detect formation measurement initiator to begin excessive heat tools and sensors inflation of the and/or fire in airbag. aircraft Result: Airbag is inflated Warning signal and Allows precise measurement in approximately 6 automatic release of geology while to 14 milliseconds of fire retardant protecting sensitive equipment from extreme heat and pressure
48 MANUFACTURING PROCESS A GTMS is made by assembling three sets of component parts (metal contacts or pins, glass bead(s) and an outer metal housing or shell) on a graphite fixture. This assembly is put through a controlled atmosphere furnace at approximately 1,800 degrees Fahrenheit until the glass becomes molten. The graphite fixture is used to hold the components in place while the glass is molten. As the assembly cools, a physical and chemical bond is formed between the glass and the shell as well as the glass and the pin, thus forming a hermetic seal. [Diagram of a glass-to-metal hermetic seal with arrows identifying its component parts, which consist of metal-feed thru pins, an outer metal housing and a glass insulator.] The Company believes that its extensive "in-house" capabilities are a key competitive advantage that has allowed it to become a low cost producer. By specifically controlling the tolerance of the component parts, the Company believes that it is able to increase the end yields of its product. This attention to quality throughout the manufacturing process also helps to ensure the timely delivery of its products. It also enables the Company to respond very quickly to prototype and new product development opportunities. The Company manufactures most of its parts to specific customer requirements. All three of the Company's operating subsidiaries use Computer Aided Design ("CAD") to produce the drawings and specifications required by the customer. The Company estimates that it has produced over 75,000 different variations of GTMS since 1945. This extensive library of designs enables the Company to suggest design changes to its customers that reduce manufacturing costs without sacrificing quality and therefore reduce the cost to the customer (value engineering). The Company has a staff of 30 engineers who work with sales people to provide solutions to customers' problems. The Company has made a significant investment in Computer Numerically Controlled ("CNC") machine tools in order to manufacture the metal shells and pins to demanding customer specifications. The Company also machines most of its own graphite fixtures thereby allowing it to maintain process quality. Many of the glass preforms used in the Company's products are manufactured internally as well. The Company is preparing to embark on a program to significantly expand its glass manufacturing capability. 49 This may also allow the Company to sell glass to outside customers as an additional source of revenues. The Company has many proprietary formulas for glass and glass/ceramic mixtures that it has developed in over 50 years of manufacturing. The Company utilizes Statistical Process Control ("SPC"), Design Failure Mode Effects Analysis, Process Failure Mode Effects Analysis and a strict adherence to complete manufacturing documentation in order to manufacture high quality products for internal use as well as external customer sales. The Company believes that its knowledge and use of these procedures give the Company a competitive advantage. Sealtron became registered to ISO 9001 in September 1996. Hermetic and Glasseal expect to be registered to ISO 9001 within twelve months and to be registered to QS 9000 (the automotive standard) within 24 months. The ISO 9001 registration, an international standard of quality, should facilitate business expansion in Europe. MARKETING AND SALES The Company's products are marketed throughout the United States to customers in a wide variety of industries, both by Company-employed salespersons, who work out of the Company's plants, and by a number of independent regional manufacturers' sale representatives. The 14 Company- employed salespersons receive a base salary plus bonus potential. Sales in Europe are through a two person office in Northhampton, England. As part of the Company's growth strategy, the Company believes that it can capture an increasing share of the business outside the United States. Economic, political, governmental and regulatory conditions in such international markets could adversely affect the Company's ability to successfully enter or operate in such markets. Therefore, no assurances can be given that the Company's attempts to expand its business into such international markets will be successful. The Company currently has 18 independent regional manufacturers-sales representatives spread geographically across the U.S. and Europe. These representatives, who do not exclusively sell the Company's products, are remunerated on a commission basis. The Company believes there is a significant opportunity to increase its sales through expansion of its sales and distribution efforts, both within the markets it currently serves and in new markets. COMPETITION The Company believes that most of the Company's competitors in the GTMS sector of the industry in which it competes are smaller and have less technological and manufacturing expertise than the Company. The Company believes that it occupies a favorable competitive position because of its experience in engineering and production techniques. Price has generally been a less significant competitive factor than the quality and design of the GTMS because their cost typically is a small percentage of the total cost of the end products in which they are used and because of the importance of the uses to which many of the Company's products are put. In addition, products for airbag initiators are qualified for particular new automotive models and new products are subject to design and process verification testing (prior to which there are no sales) which typically takes 8 to 24 months and therefore helps to inhibit new entry into the market. The Company is currently qualified to supply all of SDI's initiators and is qualified to supply or is in process verification testing on all of ICI's initiators. BACKLOG As of March 29, 1997, the Company had a backlog of $28.8 million as compared to $24.3 million as of March 30, 1996. The Company has historically maintained a strong backlog of orders. The Company sells a majority of its products pursuant to contractual agreements, sole source relationships, letters of intent or long-term purchase orders, each of which may permit early termination by the customer. However, due to the specialized, highly engineered nature of the Company's product, it is not practical in many cases for customers to shift their business to other suppliers without incurring significant switching and opportunity costs. 50 EMPLOYEES At March 29, 1997, the Company had approximately 700 employees, substantially all of whom were located in the United States. None of the Company's employees is subject to a union contract. The hourly workers employed by Sealtron had been subject to a collective-bargaining agreement between the Company and the United Paperworkers International Union, Local No. 7350, a union affiliated with the AFL-CIO. On February 28, 1997, the union was decertified. The Company has not had a strike in over 30 years and considers its relations with its employees to be satisfactory. RAW MATERIALS The Company obtains raw materials, component parts and supplies from a variety of sources and generally from more than one supplier. The Company's principal raw materials are steel and glass. The Company's suppliers and sources of raw materials are based in the United States and the Company believes that its sources are adequate for its needs for the foreseeable future. The loss of any one supplier would not have a material adverse effect on the Company's financial condition or results of operations. ENVIRONMENTAL MATTERS The Company's operations are subject to numerous Environmental Laws, including those regulating air emissions and discharges to water, and the storage, handling and disposal of solid and hazardous waste. The Company believes that it is in substantial compliance with such laws and regulations. Because Environmental Laws are becoming increasingly more stringent, the Company's environmental capital expenditures and costs for environmental compliance may increase in the future. Under certain Environmental Laws, in particular CERCLA, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Generally, liability under CERCLA is joint and several and remediation can extend to properties owned by third parties. Persons who arrange for the disposal or treatment of hazardous or toxic substances or otherwise cause the release of such substances into the environment may also be liable under such laws for the costs of removal or remediation of such substances at a disposal or treatment facility or other location where the substances have migrated or come to be located, whether or not such facility or location is or ever was operated by such person and regardless of whether the method of disposal or treatment was legal at the time. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for the presence of such hazardous or toxic substances, and the liability under such laws has been interpreted to be strict, joint and several unless the harm is divisible and there is a reasonable basis for the allocation of responsibility. In addition, the presence of hazardous or toxic substances, or the failure to remedy such property properly may adversely affect the market value of the property, as well as the owner's ability to sell or lease the property. The Company has potential liability under Environmental Laws for the remediation of contamination at two of its facilities. See "Risk Factors--Potential Exposure to Environmental Liabilities." Rosemead, California Past releases of solvents or other hazardous substances at the Company's facility in Rosemead, California may have caused contamination of on-site soil and contributed to on-site and regional groundwater contamination. Regional Groundwater Contamination. A portion of the San Gabriel Valley in which the Rosemead facility is located was designated by the EPA as a federal Superfund site in 1984. To facilitate cleanup and improve administration of the site, the EPA subdivided the valley into seven geographically distinct "operable units." The Company has been named as a potentially responsible party ("PRP") under CERCLA for the El Monte Operable Unit. The El Monte Operable Unit underlies the City of El Monte and portions of the Cities of Temple City and Rosemead and has boundaries which are defined roughly by the 51 extent of known solvent contamination in the shallow groundwater. To the extent the Rosemead facility contributed to the regional contamination, such contribution is in connection with alleged spills of the degreasing solvent tetracholoroethylene (PCE) during the period from the 1950's until sometime in the mid-1980's when the Company stopped using this solvent. Many other companies are believed to be contributors to the groundwater contamination in the El Monte Operable Unit. The Company and 14 other such companies have formed the Northwest El Monte Community Task Force (the "Task Force") to undertake the investigation of the remediation, to identify other potential contributors and potentially to undertake required remediation. In March of 1995, the Task Force entered into a Consent Administrative Order with the EPA to perform a Remedial Investigation and Feasibility Study (RI/FS) of the operable unit. The RI/FS which began in October of 1995 was originally scheduled for 90 weeks. It presently appears that the RI/FS will not be complete before October 1997. The RI/FS costs of approximately $1.9 million to date have been funded with about one-quarter of the costs coming from governmental entities and the balance paid pursuant to a confidential interim allocation agreement of Task Force members. The interim agreement with respect to the allocation of RI/FS expenses is not binding on any of the participants regarding the allocation of remediation expenses. On-site Soil and Groundwater Cleanup Costs. In addition to the Operable Unit Remediation costs, the Company has voluntarily undertaken both on-site soil and groundwater remediation. In 1995, pursuant to a contract with Fero Engineering, the Company installed a soil vapor extraction system which has, to date, reduced contamination in the soil. The system has been functioning for more than twelve months and although it is not possible to determine how long it will take to complete the remediation, the Company and Fero Engineering believe that the system may need to be in place for an additional two to three years at an operating and maintenance cost of $20,000/year. Recently, the Company completed a groundwater extraction system in conjunction with its neighbor, Crown City Plating Company. This system extracts contaminated water from below the facility and pumps the water for use in Crown City's manufacturing process prior to discharge to the municipal sanitary sewer. The system has been operational since August 1996 and is designed to capture contaminant flow from under the facility containing and cleaning the groundwater before it impacts the regional groundwater flow. Although the system has been successful, it is premature to determine how long operation of it will be needed to remediate the groundwater to acceptable levels, or if the operation of the system will be discontinued and replaced with a regional groundwater remediation program. The Company estimates the ongoing operating and maintenance costs for this system to be $30,000/year. The Company believes that its financial liability with respect to regional groundwater contamination may be substantially reduced by acting on its own initiative to commence early remediation of groundwater contamination on its property. Avon, Massachusetts The Company's facility in Avon, Massachusetts, currently inactive, was purchased in 1985 and operated as its Hermetite facility until August of 1989 at which time all equipment was removed. Subsequent to its closure, the Company identified significant levels of solvents trichloroethylene ("TCE") and 1,1,1, trichloroethane ("TCA") in the groundwater. Subsurface investigations have delineated a plume of contaminants extending from the facility, beneath the neighboring Den Lea property and into a town public water supply wellfield about 800 feet to the southeast of the property. Since the discovery of contaminants in 1991, the level of contaminants at the facility has decreased. Despite the fact that contaminants continue to move toward the wellfield, the levels at the well field remain within acceptable drinking water standards. The Avon property is subject to Massachusetts "Chapter 21E," the state's hazardous site cleanup program. The site was initially classified in the program's "Tier 1A" category, the highest tier based on the 52 proximity to the town wellfield. The property has since been reclassified to a less stringent "Tier 1B" category based on the level of contaminants. Under Tier 1B procedures, the Company may design its own remediation program subject to state oversight, auditing, and scheduling. Pursuant to this procedure, the Company, through GZA GeoEnvironmental, Inc., its licensed consultants, designed a pump and treat remediation system which is intended to capture the contaminants before they reach the town wells. In July 1996, the program was approved by the Massachusetts Department of Environmental Protection and the Company entered into an agreement with Environmental Reclamation, Inc. to construct the remediation system. The system has been designed so that its capacity can be expanded to clean the site in less time if desired by increasing the number of extraction wells. The initial cost of the system and the first year of operation and maintenance is $116,000. Construction of the system has been completed and the system has recently become operational. If no additional extraction wells are used, the Company estimates that cleanup could take 20 years at $20,000 per year. Once the system is in place, the Company will determine whether it is cost beneficial to accelerate the cleanup of the site. The Company may have to satisfy the claims asserted by its neighbor Den Lea Corporation which owns an adjacent piece of property. In 1992, Den Lea sued the Company for $400,000 in property damage caused by the migrating contamination. In 1993, the suit was withdrawn "without prejudice" based on the Company's assurance that it would remediate the site. The Company has also agreed in early 1996 with Den Lea that it can market its property together with the Company's parcel as a package. However, Den Lea could refile the lawsuit at any time if its efforts to sell its property in the future are unsuccessful. Remediation It is not presently possible to determine definitively the ultimate cost to the Company for regional groundwater remediation in Rosemead. Such a definitive determination cannot be made until (i) the completion of the RI/FS, and the subsequent selection and approval by regulatory authorities of a remediation strategy and program, if any, which may not be complete for twenty-four to thirty-six months and (ii) an agreement among Task Force members is reached regarding the Company's allocable share of remediation liability. Based on the analysis of environmental engineering consultants, the Company believes its present value cost exposure at the Avon site to be somewhere between $500,000 and approximately $2,500,000, with the upper end estimate based upon the necessity of operating an expanded treatment system for twenty years and including the costs of resolving third party claims. Based upon the foregoing, the Company has established a $10 million reserve, prior to accounting for taxes, in respect of all such environmental matters. Pursuant to the Recapitalization Agreement, the Selling Group has agreed to indemnify the Company with respect to the after-tax costs of contingent environmental and other liabilities, subject to a cap for all indemnified liabilities of $30 million. Pursuant to the Recapitalization Agreement, the Deferred Amount has been escrowed to secure indemnity claims of the Company and others, including with respect to environmental liabilities. Although there can be no assurances, the Company believes that the Deferred Amount should be adequate to cover the costs of the remediation. If the Selling Group has aggregate indemnification liabilities in respect of environmental matters in excess of $30 million, the Company has agreed to indemnify the Selling Group for such claims. See "Risk Factors--Potential Exposure to Environmental Liabilities." In addition, the Company has insurance that may cover at least a portion of its costs. Presently, 75% of the Company's legal costs are being reimbursed by some of the Company's insurance carriers under a reservation of rights by the Company and the insurance company for the balance of the legal costs. 53 FACILITIES The Company's principal executive offices are owned by the Company and are located in the Hermetic Seal facility located in Rosemead, California. Additionally, the Company has operating facilities in El Monte, California; Lakewood, New Jersey; and Reading, Ohio, as set forth below. The Company also owns approximately 47,400 square feet of plant and office space in Avon, Massachusetts, which is currently vacant.
Location Owned/Leased Square Feet -------- ------------ ----------- Rosemead, CA..................................... Owned 37,000 El Monte, CA..................................... Leased 38,000 Lakewood, NJ..................................... Owned 50,000 Reading, OH...................................... Owned 37,000
LEGAL PROCEEDINGS There are various claims and legal proceedings against the Company relating to its operations in the normal course of business, none of which the Company believes is material. The Company generally obtains indemnification agreements from its customers and currently maintains insurance coverage for product liability claims. There can be no assurance that indemnification from its customers and coverage under insurance policies will be adequate to cover any future product liability claims against the Company. In addition, liability insurance coverage is expensive, difficult to maintain and may be unobtainable in the future on acceptable terms. With respect to certain environmental claims against the Company, see "--Environmental Matters." 54 MANAGEMENT The following table sets forth certain information concerning the directors and executive officers of the Company. Each director is elected for a one (1) year term or until such person's successor is duly elected and qualified.
Name Age Position - ---- --- -------- Andrew Goldfarb .................. 49 Chairman, President and Chief Executive Officer of HCC Christopher H. Bateman............ 45 Director, Vice President and Chief Financial Officer of HCC Richard Ferraid................... 41 Director of HCC and President of Glasseal Robert H. Barton III.............. 63 Director of HCC Gary L. Swenson................... 59 Director of HCC Noel E. Urben..................... 59 Director of HCC Thomas J. Sikorski................ 35 Director of HCC John M. Leonis.................... 63 Director of HCC
Mr. Goldfarb joined the Company in 1976 and has served in various capacities and currently serves as the Chairman, Chief Executive Officer and President of HCC. Mr. Goldfarb has been a director of the Company since 1979. Mr. Bateman joined the Company in 1986 from Touche Ross & Co. and has served in various capacities and currently serves as a Vice President and the Chief Financial Officer of HCC. Mr. Bateman has been a director of the Company since 1989. Mr. Ferraid joined the Company in 1992 and has served in various capacities and currently serves as the President of Glasseal. Mr. Ferraid became a director of the Company following the consummation of the Recapitalization. Mr. Ferraid previously worked at Electrical Industries, a competitor of the Company. Mr. Ferraid has 18 years of experience in the GTMS industry. Mr. Barton was elected a director of HCC following the consummation of the Recapitalization. Mr. Barton retired as Chief Executive Officer of Alcoa Fujikura Ltd. in December 1996. He currently serves on the Board of Directors of and as senior advisor to Alcoa Fujikura Ltd. and serves on the Board of Directors of J.L. French Corporation. Mr. Swenson was elected a director of HCC following the consummation of the Recapitalization. Mr. Swenson has been President and Senior Managing Director of Windward Capital Partners, L.P. since its founding in 1994, and prior to that he was a Managing Director at CS First Boston Corporation since 1974. Mr. Swenson currently serves on the Board of Directors of J.L. French Corporation and Furr's Supermarkets, Inc. Mr. Swenson is Mr. Sikorski's father-in-law. Mr. Urben was elected a director of HCC following the consummation of the Recapitalization. Mr. Urben has been a Senior Managing Director at Windward Capital Partners, L.P. since 1995, and prior to that he was the President and a director of BT Capital Corporation. Mr. Urben currently serves on the Board of Directors of Strouds, Inc., Tycom Corporation and J.L. French Corporation. Mr. Sikorski was elected a director of HCC following the consummation of the Recapitalization. Mr. Sikorski has been a Managing Director of Windward Capital Partners, L.P. since its founding in 1994. Prior to joining Windward Capital Partners, L.P., Mr. Sikorski was Director of Private Equity Investments at MetLife from 1992-1995 and prior to that was a Vice President in the Leveraged Buyout Group at the First Boston Corporation since 1986. Mr. Sikorski currently serves on the Board of Directors of Furr's Supermarkets, Inc. and Coating Technologies International. Mr. Sikorski is Mr. Swenson's son-in-law. Mr. Leonis was elected a director of HCC in July 1997. Mr. Leonis is currently chairman of the Board of Directors and Chief Executive Officer of Litton Industries, Inc. Mr. Leonis has worked at Litton Industries, Inc. in various capacities for 36 years. Mr. Leonis currently serves as a member of the Board of Directors of the Los Angeles World Affairs Council and Town Hall, and a member of the Board of Governors of the Aerospace Industries Association. 55 EXECUTIVE COMPENSATION The following table sets forth the total value of compensation received by the Chief Executive Officer and the two most highly compensated executive officers, other than the Chief Executive Officer, who served as executive officers of the Company as of March 29, 1997 (collectively with the Chief Executive Officer, the "Named Executive Officers") for services rendered in all capacities to the Company for the year ended March 29, 1997. SUMMARY COMPENSATION TABLE(/1/)
LONG-TERM ANNUAL COMPENSATION COMPENSATION ------------------- ------------ NUMBER OF SECURITIES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION(/2/) - --------------------------- ---- -------- ---------- ------------ ----------------- Andrew Goldfarb......... 1997 $462,467 $ -- -- $25,319 Chairman of the Board 1996 $485,362 $2,545,000 -- $15,362 of Directors, Chief Ex- 1995 $468,028 $ 825,000 -- $95,801 ecutive Officer and President of HCC Christopher Bateman..... 1997 $200,575 $ -- 3,195 $20,108 Chief Financial Officer 1996 $200,000 $ 642,500 -- $17,020 and 1995 $193,009 $ 207,500 -- $58,548 Vice President of HCC Richard Ferraid......... 1997 $200,000 $ 75,000 3,590 $13,608 President of Glasseal 1996 $148,438 $ 250,000 -- $13,464 1995 $ 96,563 $ 100,000 -- $13,420
- -------- (/1/)None of the executive officers has received perquisites the value of which exceeded the lesser of $50,000 or 10% of the salary and bonus of such executive officer. (/2/)For 1997, all other compensation included the following amounts: Mr. Goldfarb, $6,000 of Company contributions into the Company's 401(k) plan, $1,677 for automobile allowance and $17,642 for allocated life insurance; Mr. Bateman, $6,000 for Company contributions into the Company's 401(k) plan, $12,088 for automobile allowance and $2,020 for allocated life insurance; Mr. Ferraid, $6,000 for Company contributions into the Company's 401(k) plan, $7,200 for automobile allowance and $408 for allocated life insurance. 56 GRANTS OF STOCK OPTIONS The following table sets forth information concerning the award of stock options to the Named Executive Officers during the fiscal year ended March 29, 1997 pursuant to the Company's 1997 Stock Option Plan ("Option Plan").
OPTION GRANTS IN LAST FISCAL YEAR -------------------------------------------------------------------------- INDIVIDUAL GRANTS ------------------------------------------------------------------ NUMBER OF GRANT SECURITIES % OF TOTAL OPTIONS DATE UNDERLYING GRANTED TO PRESENT OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION VALUE NAME GRANTED (#) FISCAL YEAR ($/SH) DATE ($) - ---- ----------- ------------------ -------------- ----------------- ------- Christopher Bateman..... 1,220(/1/) 7.2 370.49(/2/) February 13, 2007 120,780(/3/) 1,185(/4/) 7.0 370.49(/2/) February 13, 2007 117,315(/3/) 790(/5/) 4.6 370.49(/2/) February 13, 2007 78,210(/3/) Richard Ferraid......... 1,220(/1/) 7.2 370.49(/2/) February 13, 2007 120,780(/3/) 1,185(/4/) 7.0 370.49(/2/) February 13, 2007 117,315(/3/) 1,185(/5/) 7.0 370.49(/2/) February 13, 2007 117,315(/3/)
- -------- (/1/)These options are subject to a vesting schedule that generally provides for each option to vest 20% per year over five years commencing on the first anniversary of the date of grant if the Company attains specified annual or cumulative earnings targets set forth in the Option Plan. All options automatically vest on the seventh anniversary of the date of grant regardless of whether the performance criteria are achieved. (/2/)All options have an exercise price equal to the fair value of common stock at the date of grant ($370.49 per share). (/3/)The grant date value of each option granted was estimated to be $99 using the minimum value method with the following assumptions (i) risk-free interest rate of 6.25%, (ii) expected option life of five years, (iii) forfeiture rate of 0 and (iv) no expected dividends. (/4/)These options are subject to a vesting schedule based on a change in control in which the Windward Group realizes a 30% compounded annual rate of return on its equity investment in the Company, as defined in the Option Plan. All options will automatically vest on the seventh anniversary of the date of grant regardless of whether the performance criteria are achieved. (/5/)These options are subject to a vesting schedule based on a change in control in which the Windward Group realizes a 40% compounded annual rate of return on its equity investment in the Company, as defined in the Option Plan. All options will automatically vest on the seventh anniversary of the date of grant regardless of whether the performance criteria are achieved. The following table sets forth information concerning the fiscal year-end value of unexercised options held by the Named Executive Officers. The Named Executive Officers did not exercise any options during the fiscal year ended March 29, 1997.
FY-END OPTION VALUE -------------------------------------------- NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT FY-END (#) OPTIONS AT FY-END ($) EXERCISABLE/ EXERCISABLE/ NAME UNEXERCISABLE UNEXERCISABLE - ---- ---------------------- --------------------- Christopher Bateman................ 0/3,195 0/0(/1/) Richard Ferraid.................... 0/3,590 0/0(/1/)
- -------- (/1/As)of March 29, 1997, the fair market value of a share of Common Stock did not exceed the exercise price per share of the options held by the Named Executive Officers. 57 LONG-TERM INCENTIVE PLAN COMPENSATION The following table sets forth information concerning awards during the fiscal year ended March 29, 1997 to each of the Named Executive Officers under the Company's Contingent Bonus Plan ("Bonus Plan").
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR ------------------------------------------------------ ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK- PRICE-BASED PLANS ----------------- PERFORMANCE OR NUMBER OF SHARES, OTHER PERIOD UNITS OR OTHER UNTIL MATURATION TARGET NAME RIGHTS (#)(/1/) OR PAYOUT ($) - ---- ----------------- ------------------ ----------------- Christopher Bateman...... 6.25 June 30, 1999 $375,000 6.25 September 30, 2000 $375,000 Richard Ferraid.......... 7.5 June 30, 1999 $450,000 7.5 September 30, 2000 $450,000
- -------- (/1/)EachBonus Unit represents an interest in the bonus pool of $6.0 million. Half of the contingent bonuses vest upon the Company obtaining $22.0 million of Operating EBITDA (as defined in the Bonus Plan) on a latest twelve month basis within 15 months beginning on the first day of the Company's 1998 fiscal year and the remaining half vest upon the Company obtaining $28.0 million of Operating EBITDA on a latest twelve month basis within 30 months beginning on the first day of the Company's 1998 fiscal year. In addition, if the Company completes an initial public offering (an "IPO") or sale resulting in a Change in Control (as defined in the Bonus Plan) (a "Sale Event") within 30 months of March 31, 1997 any unvested contingent bonuses will vest in their entirety and become redeemable at par if (a) the equity market capitalization of the Company is greater than $175 million for 20 consecutive trading days subsequent to the IPO (but prior to 30 months from March 31, 1997) or if the equity valuation in the sale (after certain specified adjustments) is greater than $175 million. Vested contingent bonuses become due and payable on the third anniversary of the applicable vesting date and will bear interest at 10% per annum (payable semi-annually in arrears) from each applicable vesting date until paid in full. Pursuant to the Bonus Plan, all of an employee's Bonus Units terminate immediately when such employee ceases to be employed by the Company, unless such employment ceases due to such employee's death or disability, in which case such employee will be vested in a portion of such employee's Bonus Units. EMPLOYMENT AGREEMENTS In February, 1997, Andrew Goldfarb, Christopher Bateman and Richard Ferraid each entered into an employment agreement with HCC (the "Employment Agreements"). Pursuant to the Employment Agreements, such executives will be employed by HCC until April 1, 1999 (April 2000 in the case of Mr. Goldfarb) provided that HCC may terminate such executive by reason of disability, death or for good cause (as defined in the Employment Agreements). Upon termination by the Company for reasons other than death, disability or good cause, the Executive will be entitled to receive salary, bonus and benefits for the remainder of the term. Following the date of any termination (other than by death) HCC has sole discretion to retain such executive as an exclusive consultant for a term of two (three in the case of Mr. Goldfarb) years (the "Consulting Period") in exchange for a consulting fee equal to 50% of base salary. The agreement provides for a base salary to be determined in accordance with HCC's policies and an annual bonus contingent on certain performance-based criteria. Pursuant to the terms of the agreement, such executive, during the term of the Employment Agreement and the Consulting Period may not solicit customers of the Company, engage in business with any competing entity or induce any other employee of the Company to leave his or her employment with the Company. 58 OPTION PLAN In connection with the Recapitalization, HCC adopted the Option Plan which provides for the grant to employees from time to time of non-qualified stock options to purchase up to an aggregate of 22,887 shares of Common Stock at exercise prices to be determined by the Board of Directors. The Option Plan provides for the grant of management options to purchase 6,393 shares of Common Stock (the "Management Options"), management performance options to purchase 14,206 shares of Common Stock (the "Management Performance Options"), director options to non-affiliates of Windward to purchase 710 shares of Common Stock (the "Director Options"), and director performance options to non-affiliates of Windward to purchase 1,578 shares of Common Stock (the "Director Performance Options"). The Management Options and Director Options were granted subject to an EBITDA (as defined in the Option Plan) vesting schedule that provides for 20% of each series of options to vest in each of fiscal year 1998 through fiscal year 2002 if the Company attains a specified target for each such year ($21.8 million EBITDA in fiscal 1998, $28.5 million EBITDA in fiscal 1999, $32.6 million EBITDA in fiscal 2000, $35.3 million EBITDA in fiscal 2001 and $37.6 million EBITDA in fiscal 2002). The Options will also vest if certain cumulative EBITDA targets are achieved after certain multiple year periods or, so long as the Windward Group realizes specified rates of return on its aggregate equity investment, upon a Change of Control (as defined in the Option Plan). In addition, regardless of whether the performance criteria are achieved, all Options including, the performance- based Options, will vest automatically on the seventh anniversary of the date of grant. The Management Performance Options and Director Performance Options were granted subject to a vesting schedule providing for 50% of each series of options to vest upon a Change of Control in which the Windward Group realizes a 30% compounded annual rate of return on its aggregate equity investment in the Company and the remaining 50% of each series of options vesting upon a Change of Control in which the Windward Group realizes a 40% compounded annual rate of return on its aggregate equity investment in the Company. As of March 29, 1997, 18,160 options have been granted under the Option Plan which entitle the holders to purchase upon vesting 18,160 shares of Common Stock at an exercise price of $370.49 per share. An additional 4,727 options may be granted under the Option Plan. CONTINGENT BONUS PLAN In connection with the Recapitalization, HCC adopted the Bonus Plan, pursuant to which the Company will grant Bonus Units (each representing an interest in the bonus pool of $6 million) to certain key employees (the "Participants"). The Bonus Units will be awarded by a committee of the Board of Directors of HCC formed to administer the Bonus Plan. Half of the contingent bonuses vest upon the Company obtaining $22 million of Operating EBITDA (as defined in the Bonus Plan) on a latest twelve month basis within 15 months beginning on the first day of the Company's 1998 fiscal year and the remaining half vest upon the Company obtaining $28 million of Operating EBITDA on a latest twelve month basis within 30 months beginning on the first day of the Company's 1998 fiscal year. In addition, if the Company completes an IPO or a Sale Event within 30 months of March 31, 1997 any unvested contingent bonuses will vest in their entirety and become redeemable at par if (a) the equity market capitalization of the Company is greater than $175 million for 20 consecutive trading days subsequent to the IPO (but prior to 30 months from March 31, 1997) or if the equity valuation in the sale (after certain specified adjustments) is greater than $175 million. Vested contingent bonuses become due and payable on the third anniversary of the applicable vesting date and will bear interest at 10% per annum (payable semi-annually in arrears) from each applicable vesting date until paid in full. Pursuant to the Bonus Plan, all of an employee's Bonus Units terminate immediately when such employee ceases to be employed by the Company, unless such employment ceases due to such employee's death or disability, in which case such employee will be vested in a portion of such employee's Bonus Units. 59 DIRECTOR COMPENSATION Each of Messrs. Barton and Leonis receive an annual fee of $20,000. In addition, in 1997 Messrs. Barton and Leonis received 695 and 470 stock options respectively, of which 215 and 150, respectively, are subject to a vesting schedule that generally provides for each option to vest 20% per year over five years commencing on the first anniversary of the date of grant if the Company attains specified annual or cumulative earnings targets set forth in the Option Plan and the remaining options vest upon a change in control in which the Windward Group realized specified annual rates of return on its equity investment in the Company as defined in the Option Plan. All options automatically vest on the seventh anniversary of the date of grant regardless of whether the performance criteria are achieved. All options have an exercise price equal to the fair value of the common stock at the date of grant ($370.49 per share). COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In fiscal 1997, the Company had no compensation committee and compensation matters were handled exclusively by Mr. Goldfarb, Chief Executive Officer and Chairman of the Board of Directors of HCC. 60 SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table lists all shares of HCC's Common Stock as of June 15, 1997, beneficially owned by each director of HCC, each executive officer of HCC and each person known by the Company to beneficially own more than 5% of such outstanding shares of Common Stock at such date. The table also reflects the percentage of the shares owned beneficially by all executive officers and directors of HCC as a group. Share numbers and percentages in the table are rounded to the nearest whole share and assume redemption of the equity portion of the Mezzanine Units. As of June 15, 1997 there were 134,955 shares of Common Stock of HCC outstanding.
Number of Name and Address Shares of of Beneficial Owners Common Stock* Percent of Class - -------------------- ------------- ---------------- Windward/Park HCC, L.L.C.(a)(b)................. 53,836 39.9% Windward/Merban, L.P.(a)(b)..................... 10,767 8.0% Windward/Merchant, L.P.(a)(b)................... 21,535 16.0% Windward Capital Associates, L.P.(a)(b)(c)...... 87,721 65.0% Windward Capital Associates, Inc.(b)(c)......... 87,721 65.0% Gary Swenson(b)(d)(e)........................... 87,721 65.0% Thomas J. Sikorski(b)(e)........................ -- ** Noel E. Urben(b)(e)............................. -- ** Robert Barton................................... -- ** John M. Leonis.................................. -- ** Andrew Goldfarb(f)(h)........................... 30,453 22.6% Christopher Bateman(f)(g)....................... 9,173 6.8% Richard Ferraid(f)(g)........................... 3,558 2.6% All directors and executive officers of the Com- pany as a group (7 persons)(g)(i).............................. 43,184 32.0%
- -------- * HCC's common equity is divided into four separate classes of Common stock, par value $.10 per share: (i) Class A Common Stock with one vote per share, (ii) Class B Common Stock with one vote per share, (iii) Class C Common Stock with no voting rights, except as required by applicable state law and (iv) Class D Common Stock with 10 votes per share. Except for voting rights, all the common equity of the Company have identical economic terms. Other than Windward/Merban, L.P. and Windward/Merchant, L.P., all other stockholders of HCC own Class A Common Stock. See note (a) below. ** Less than 1.0%. (a) Windward/Park HCC, L.L.C. owns 53,836 shares of Class A Common Stock, Windward/Merban L.P. owns 6,451 shares of Class B Common Stock and 4,316 shares of Class C Common Stock, Windward/Merchant, L.P. owns 21,055 shares of Class B Common Stock and 480 shares of Class D Common Stock and Windward Capital Associates, L.P. owns 1,583 shares of Class A Common Stock. The Windward Group due to their common control may be deemed to beneficially own each others shares, but each disclaims such beneficial ownership. The Windward Group consists of Windward, Windward/Merchant, L.P., the partners of which are Windward and an affiliate of Credit Suisse First Boston Corporation, Windward/Merban, L.P., the partners of which are Windward and an affiliate of Credit Suisse First Boston Corporation and Windward/Park HCC, LLC, the members of which are Windward and MetLife. Pursuant to a set of program agreements, the Windward Group, along with certain other entities, invests in merchant banking investments organized and managed by Windward and its affiliates. The program agreements govern the relationship among the Windward Group and provide for, among other things, procedures for investments, allocations of income and 61 loss, distributions of funds, transfers of interests between and among the partners or members or third parties, provisions relating to the activities of the general partner or manager, including in respect of fees, powers and limitations and removal by the other partners or members, and procedures for the limited partners or non-managing members to exercise voting and management control of the investments. Windward and the other members of the Windward Group have reached agreement concerning an early termination of the period during which they may make future investments under their program agreements. Windward and the other members have informed the Company that such termination will not have any effect on their investment in, or the management or control of, the Company. (b) The business address for such person(s) is c/o Windward Capital Partners, L.P., 11 Madison Avenue, 26th Floor, New York, New York 10010. (c) Windward Capital Associates, L.P. may be deemed to share beneficial ownership of the Common Stock owned of record by the Windward Group, by virtue of its status as the general partner of Windward/Merchant, L.P., Windward Merban, L.P. and the Managing Member of Windward/Park HCC, L.L.C., but disclaims such beneficial ownership. Windward Capital Associates, Inc. may be deemed to share beneficial ownership of shares of Common Stock owned of record by the Windward Group by virtue of its status as the general partner of Windward Capital Associates, L.P., but disclaims such beneficial ownership. (d) Mr. Swenson may be deemed to share beneficial ownership of the shares of Common Stock owned of record by the Windward Group, by virtue of his status as the sole stockholder of Windward Capital Associates, Inc., the general partner of Windward Capital Associates, L.P. Mr. Swenson disclaims such beneficial ownership. Windward Capital Associates, L.P. is the general partner of Windward/Merchant, L.P., Windward Merban, L.P. and the Managing Member of Windward/Park HCC, L.L.C. (e) Messrs. Swenson, Sikorski and Urben may be deemed to share beneficial ownership of shares of Common Stock owned by the Windward Group by virtue of their status as limited partners of Windward Capital Associates, L.P., but disclaim such beneficial ownership. (f) The business address of such person(s) is c/o HCC Industries Inc., 4232 Temple City Blvd., P.O. Box 739, Rosemead, CA 91770-1592. (g) Excludes outstanding options to purchase the shares of Common Stock which are not exercisable within sixty days. See "Management--Grants of Stock Options" (h) Includes 27,753 shares of Common Stock owned by the Andrew and Denise Goldfarb Revocable Trust of 1995. Also includes 1,350 shares of Common Stock owned by The Jessica Anne Goldfarb Irrevocable Trust and 1,350 shares of Common Stock owned by The Rebecca Goldfarb Irrevocable Trust of which Mr. Goldfarb's brother is the trustee. Mr. Goldfarb disclaims beneficial ownership of the shares of Common Stock owned by such trusts. (i) Excludes shares of Common Stock referred to in notes (d) and (e) above. 62 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Set forth below is a summary of certain agreements and arrangements, as well as other transactions between the Company and related parties which have taken place during the Company's most recently completed three fiscal years. See "The Recapitalization." INVESTOR RELATIONSHIPS The Windward Group, after giving effect to the redemption of the Mezzanine Units, beneficially owns 65% of the common equity of HCC as described under "Securities Ownership of Certain Beneficial Owners and Management". In connection with the Recapitalization, HCC, under the terms of a Financial Advisory Services Agreement dated as of February 14, 1997, agreed to pay Windward Capital Partners, L.P., an affiliate of Windward (the "Management Company") an annual management fee of $125,000 and to reimburse it for expenses reasonably incurred by it in connection with the provision of such services each year for a term of three years commencing on February 14, 1997, and thereafter for successive one-year periods until the board of directors of HCC gives written notice to end such one-year terms. In addition, HCC has agreed to indemnify the Management Company to the fullest extent permitted by law against certain claims, losses, damages, liabilities and expenses which may arise in connection with the rendering of such services. HCC has also reimbursed the Management Company for its out-of-pocket, legal and consulting expenses of $685,000 in connection with its services rendered in the Recapitalization. The Company, Windward and the members of the Windward Group have been engaged in discussions regarding the payment of a transaction fee to members of the Windward Group in connection with the Recapitalization. At present, no agreement has been reached as to whether or not any such transaction fee will be paid. The Company believes that the fee will not exceed $1.3 million or be paid prior to August 31, 1997. Any such payments shall be made only in compliance with the applicable provisions of the Indenture. See "The Recapitalization" and "Description of the Notes." Credit Suisse Group, the ultimate parent of Credit Suisse First Boston Corporation, holds significant economic interests in Windward/Merban, L.P. and Windward/Merchant, L.P. which own in the aggregate 32,302 shares of Common Stock of HCC, and Credit Suisse First Boston Corporation acted as one of the Initial Purchasers in, and received compensation in connection with the Offering. In addition, Windward/Park HCC, L.L.C., Windward/Merban, L.P. and Windward/Merchant, L.P. owned 91%, 7% and 2%, respectively, of the Mezzanine Units which were repurchased by HCC from the proceeds of the Offering. See "The Recapitalization" and "Use of Proceeds." STOCKHOLDERS AGREEMENT The Stockholders Agreement dated as of February 14, 1997 by and among the Windward Group, HCC, and the stockholders listed on the signature pages thereto (the "Management Stockholders") (the "Stockholders Agreement") provides, among other things, that HCC's Board of Directors will consist of nine (9) members, including three (3) members designated by the Management Stockholders, three (3) outside directors (non-employees of Windward) designated by Windward and two (2) members designated by Windward (the "Windward Nominees") and one (1) director (and one non-voting observer) designated by MetLife (holder of the majority of the percentage interests in Windward/Park HCC, L.L.C.) (the "Windward/Park Nominee"). The Management Stockholders may recommend two (2) of the three (3) outside directors for consideration by Windward. Further, all board action requires the affirmative vote of a majority of the Windward Nominees. Directors may be removed only for cause, defined as the commission of a fraudulent act or an act of embezzlement against the Company or any conviction or guilty plea for a felony except a director may be removed (with or without cause) by the party who designated such director. The Stockholders Agreement provides for certain limitations on transfers of Common Stock by stockholders, as well as rights of first refusal to purchase stock from another stockholder of HCC and for 63 certain preemptive rights. Further, the Stockholders Agreement provides for tag-along rights whereby any stockholder has certain rights to include a portion of his shares for sale in connection with a sale by another selling stockholder. The Windward Group has, under the terms of the Stockholders Agreement and subject to the satisfaction of certain conditions, (i) the right to cause a sale of the Company, (ii) the right to cause the Company to effect an initial public offering and (iii) certain demand and piggyback registration rights in favor of Windward and the Management Stockholders. The Stockholders Agreement also contains certain rights and obligations of HCC to purchase stock held by members of management upon termination of employment at specified prices. The Stockholders Agreement terminates upon the earlier of (i) February 14, 2007, (ii) an initial public offering event (in which case certain provisions of the Stockholders Agreement, including those dealing with registration rights, shall survive until one of the other events causing termination occurs), (iii) a sale of all or substantially all of the Company's assets or equity interests to a third party, (iv) approval of the Windward Group and a majority of the stock held by the Management Stockholders, or (v) subject to certain circumstances, when the Windward Group ceases to own at least 5% of the total outstanding number of shares of Common Stock. OTHER In connection with the Recapitalization, Richard Ferraid, a director of HCC and President of Glasseal, paid in full the $150,000 owed to the Company pursuant to a Promissory Note, bearing interest of 7% per annum, dated September 30, 1995. Such promissory note was made in connection with a purchase of stock from the Company. In June 1996, HCC exercised an option with a former stockholder to acquire all of such stockholder's shares of common stock in HCC's predecessor. See Note 1 to the Notes to Consolidated Financial Statements. Steven Goldfarb, Andrew Goldfarb's brother and a director of HCC until his resignation in connection with the Recapitalization in February 1997, served as counsel to the Company. In fiscal year 1996, the Company paid Steven Goldfarb $329,000 for legal services. 64 DESCRIPTION OF CERTAIN INDEBTEDNESS THE CREDIT FACILITIES In connection with the Recapitalization, the Company entered into a Credit Agreement, dated as of February 14, 1997 (the "Old Credit Agreement"), with Fleet Capital Corporation as agent (the "Agent") and the Lenders party thereto which provided for, among other things, a $10.0 million five-year revolving credit facility. In connection with the Offering, the Company, the Agent and the Lenders entered into an amendment, dated as of May 6, 1997, to increase the amount available under the revolving credit facility to $20.0 million (the Old Credit Agreement, as so amended and in effect on the date hereof, the "Amended Credit Agreement"). The following summary describes certain provisions of the Amended Credit Agreement. The following summary does not purport to be complete and is subject to and qualified in its entirety by reference to the form of the Amended Credit Agreement. General. The Revolving Credit Facility includes a letter of credit subfacility in an amount not to exceed $5.0 million. Additionally, up to $2.0 million of the Revolving Credit Facility may be borrowed from Fleet Capital Corporation in its individual capacity as swingline loans ("Swingline Loans"). Interest Rates; Fees. Loans outstanding under the Revolving Credit Facility (other than the Swingline Loans) may be maintained from time to time, at the Company's option, as (i) Base Rate Loans which bear interest at the Base Rate (defined in the Amended Credit Agreement as the higher of (x) 1/2 of 1% in excess of the Federal Reserve reported rate on overnight transactions and (y) the Agent's announced prime lending rate, each as in effect from time to time) or (ii) Eurodollar Loans which bear interest at LIBOR (adjusted for maximum reserves) as determined by the Agent for the applicable interest period plus 1.50%. LIBOR is fixed for interest periods of 1, 2, 3 or 6 months, at the option of the Company. Swingline Loans must be maintained as Base Rate Loans and bear interest at the Base Rate. The Company must pay a commitment fee calculated at a rate of 1/4 of 1% per annum of the unutilized commitments of each lender under the Revolving Credit Facility; provided, however, that (i) outstanding Swingline Loans do not constitute usage of the Revolving Credit Facility for purposes of calculating the commitment fee and (ii) until the amounts outstanding under the Revolving Credit Facility, including the stated amount of any outstanding letters of credit, exceeds $15.0 million (but not thereafter) commitment fees shall be calculated based on a total commitment of $15.0 million. The Company must also pay a utilization fee of 1/4% per annum on the amount, if any, by which the aggregate amount outstanding under the Revolving Credit Facility, including the stated amount of any outstanding letters of credit, exceeds $10.0 million. The Company must pay a letter of credit fee equal to 1.50% plus any utilization fee then applicable, and a facing fee of 1/4 of 1% per annum, in each case, based on the aggregate stated amount of each letter of credit for its stated duration. Security. The obligations of the Company under the Revolving Credit Facility are secured by a first priority security interest on substantially all present and future assets of the Company, including all of the Company's stock in each of its domestic subsidiaries and 65% of the stock of the Company's foreign subsidiaries. Guaranties. The obligations of the Company under the Revolving Credit Facility are guarantied by each of the Company's domestic subsidiaries (each, a "Guarantor"). The guaranties are secured by a first priority security interest on substantially all present and future assets of each Guarantor, including all of each Guarantor's stock in each of its domestic subsidiaries and 65% of the stock of each of its foreign subsidiaries. 65 Covenants. The Amended Credit Agreement contains customary restrictive covenants, including without limitation restrictions on changes in character of business, mergers, sales or transfers of assets, acquisitions of assets, liens, indebtedness, restricted payments, prepayments or repurchases of other indebtedness, dividends and transactions with affiliates, as well as a covenant relating to minimum debt payment coverage. Mandatory Prepayments. The Company is required to make mandatory prepayments of loans outstanding under the Revolving Credit Facility with the proceeds of certain asset sales which proceeds have not been reinvested so as to ensure that the Company does not have any obligation under the Indenture to make an offer to repurchase the Notes with such proceeds. Events of Default. The Amended Credit Agreement contains customary events of default including without limitation failure to pay principal, interest or fees owed under such agreement when due, any representation or warranty being materially incorrect when made, the failure to perform or timely observe covenants set forth therein, cross-defaults to other indebtedness, bankruptcy, judgments in excess of specified amounts, invalidity of guaranties, impairment of security interests in collateral and certain changes of control. Upon the occurrence and during the continuance of an event of default under the Amended Credit Agreement, the Lenders may terminate their commitments to make new loans, declare the then outstanding loans due and payable and foreclose on collateral securing the Company's obligations thereunder. CONTINGENT NOTES In connection with the Recapitalization, the Company issued the Contingent Notes to the Selling Group which bear interest at 12% per annum (payable semi- annually in arrears) from the applicable vesting date until paid in full. Half of the Contingent Notes vest upon the Company obtaining $22.0 million of Operating EBITDA (as defined in the Contingent Notes) on a latest twelve month basis within 15 months beginning on the first day of the Company's 1998 fiscal year and the remaining half vest upon the Company obtaining $28.0 million of Operating EBITDA on a latest twelve month basis within 30 months beginning on the first day of the Company's 1998 fiscal year. In addition, if the Company completes an initial public offering (an "IPO") or a sale resulting in a Change of Control (as defined in the Contingent Note) (a "Sale Event") within 30 months of March 31, 1997 any unvested principal amounts of Contingent Notes will vest in their entirety and become redeemable at par if (a) the equity market capitalization of the Company is greater than $175.0 million for 20 consecutive trading days subsequent to the IPO (but prior to 30 months from March 31, 1997) or if the equity valuation in the sale (after certain specified adjustments) is greater than $175.0 million. Vested principal amounts of the Contingent Notes become due and payable on the third anniversary of the applicable vesting date (or earlier, at the option of the Company, subject to any applicable restrictions contained in the Indenture or in any other debt of the Company) or upon consummation of an IPO or a Sale Event. The Contingent Notes rank pari passu with the Mezzanine Notes and the indebtedness evidenced by such Contingent Notes are subordinate to Senior Indebtedness and the Notes. See "Description of The Notes." 66 DESCRIPTION OF THE NOTES GENERAL The New Notes are to be issued under an Indenture, dated as of May 6, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as Trustee (the "Trustee"). The New Notes are identical in all material respects to the terms of the Old Notes except that, if the Exchange Offer is not consummated by November 3, 1997, additional interest will accrue on the Old Notes from and including such date until but excluding the date of consummation of the Exchange Offer at a rate of .50% per annum (increasing at .50% per annum at the end of each 90-day period following November 3, 1997, but in no event will the additional interest exceed 2%). The following is a summary of certain provisions of the Indenture and the Notes, a copy of which Indenture and the form of Notes is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following summary of certain provisions of the Indenture and the Notes does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture and the Notes, including the definitions of certain terms therein and those terms made a part thereof by the Trust Indenture Act. As used in this "Description of the Notes" section, references to the "Company" include only HCC Industries Inc. and not its Subsidiaries. Principal of, premium, if any, and interest on the Notes will be payable, and the Notes may be exchanged or transferred, at the office or agency of the Company in the Borough of Manhattan, The City of New York (which initially shall be the corporate trust office of the Trustee, at IBJ Schroder Bank & Trust Company, One State Street, New York, New York 10004), except that, at the option of the Company, payment of interest may be made by check mailed to the address of the Holders as such address appears in the Note register. The New Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. See "--Book Entry, Delivery and Form." No service charge shall be made for any registration or exchange of Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. TERMS OF THE NOTES The Notes are unsecured senior subordinated obligations of the Company, limited to $90.0 million aggregate principal amount, and will mature on May 15, 2007. The Notes are subordinate in right of payment to certain other debt obligations of the Company. The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from May 6, 1997. Accordingly, if the relevant record date for interest payment occurs after the consummation of the Exchange Offer registered holders of New Notes on such record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from May 6, 1997. If, however, the relevant record date for interest payment occurs prior to the consummation of the Exchange Offer registered holders of Old Notes on such record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from May 6, 1997. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer, except as set forth in the immediately preceding sentence. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. The Company will pay interest on overdue principal at 1% per annum in excess of such rate, and it will pay interest on overdue installments of interest at such higher rate to the extent lawful. Interest on the Notes will be computed on the basis of a 360-day year of twelve 30-day months. 67 The interest rate on the Old Notes is subject to increase in certain circumstances if the Registration Statement of which this Prospectus is a part relating to the Registered Exchange Offer is not declared effective on a timely basis or if certain other conditions are not satisfied, all as further described under "--Registered Exchange Offer; Registration Rights." For each Old Note accepted for exchange, the Holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. Old Notes and New Notes will be treated as a single class of securities under the Indenture. OPTIONAL REDEMPTION Except as set forth in the following paragraph, the Notes will not be redeemable at the option of the Company prior to May 15, 2002. Thereafter, the Notes will be redeemable, at the Company's option, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on May 15 of the years set forth below:
REDEMPTION PERIOD PRICE ------ ---------- 2002.......................................... 105.375% 2003.......................................... 103.583% 2004.......................................... 101.792% 2005 and thereafter........................... 100.000%
In addition, at any time and from time to time prior to May 15, 2000, the Company may redeem in the aggregate up to $20.0 million of the original principal amount of the Notes with the proceeds of one or more Public Equity Offerings following which there is a Public Market, at a redemption price (expressed as a percentage of principal amount) of 110.75% plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least $70.0 million aggregate principal amount of the Notes must remain outstanding after each such redemption. In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Note of $1,000 in original principal amount or less shall be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. The Notes will not have the benefit of a sinking fund. SUBSIDIARY GUARANTEES The obligations of the Company pursuant to the Notes, including the repurchase obligation resulting from a Change of Control, are unconditionally guaranteed, jointly and severally, on a senior subordinated basis, by each of the Subsidiary Guarantors. Each Subsidiary Guarantee is limited in amount to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor without rendering the Subsidiary Guarantee, as it relates to such Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. If a Subsidiary Guarantee were to be rendered voidable, a court could deem it unenforceable or 68 subordinate it to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Subsidiary Guarantor, and, depending on the amount of such indebtedness, a Subsidiary Guarantor's liability on its Subsidiary Guarantee could be reduced to zero. See "Risk Factors-- Subordination of the Notes and Subsidiary Guarantees." Pursuant to the Indenture, a Subsidiary Guarantor may consolidate with, merge with or into, or transfer all or substantially all its assets to any other Person to the extent described below under "--Certain Covenants--Merger and Consolidation"; provided, however, that if such other Person is not the Company, such Subsidiary Guarantor's obligations under its Subsidiary Guarantee must be expressly assumed by such other Person. However, upon the sale or other disposition (including by way of consolidation or merger) of a Subsidiary Guarantor or the sale or disposition of all or substantially all the assets of a Subsidiary Guarantor (in each case other than to the Company or an Affiliate of the Company) permitted by the Indenture, such Subsidiary Guarantor will be released and relieved from all its obligations under its Subsidiary Guarantee. RANKING The indebtedness evidenced by the Notes and Subsidiary Guarantees are senior subordinated unsecured obligations of the Company and the Subsidiary Guarantors, as the case may be. The payment of the principal of, premium (if any) and interest on the Notes and the payment of any Subsidiary Guarantee is subordinate in right of payment, as set forth in the Indenture, to the prior payment in full of all Senior Indebtedness of the Company or the relevant Subsidiary Guarantor, as the case may be, whether outstanding on the Issue Date or thereafter Incurred, including the obligations under the Revolving Credit Facility. As of March 29, 1997, after giving pro forma effect to the Offering as if it had occurred on such date, the Company and Subsidiary Guarantors' Senior Indebtedness would have been approximately $3.1 million (all of which is Secured Indebtedness). Although the Indenture contains limitations on the amount of additional Indebtedness that the Company and the Restricted Subsidiaries may Incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness. See "--Certain Covenants--Limitation on Indebtedness" and "--Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries." Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior Indebtedness ranks senior to the Notes and the Subsidiary Guarantees in accordance with the provisions of the Indenture. The Notes and each Subsidiary Guarantee in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company and the relevant Subsidiary Guarantor, respectively. The Company and each Subsidiary Guarantor has agreed in the Indenture that it will not Incur, directly or indirectly, any Indebtedness that is subordinate or junior in ranking in right of payment to its Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be subordinated or junior to secured Indebtedness merely because it is unsecured. The Company may not pay principal of, premium (if any) or interest on the Notes or make any deposit pursuant to the provisions described under "-- Defeasance" below and may not repurchase, redeem or otherwise retire any Notes (collectively, "pay the Notes") if (i) any Designated Senior Indebtedness is not paid when due or (ii) any other default on Designated Senior Indebtedness occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Designated Senior Indebtedness has been paid in full. However, the Company may pay the Notes without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of the Designated Senior Indebtedness with respect to which either of the events set forth 69 in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the second preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (A) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (B) because the default giving rise to such Blockage Notice is no longer continuing or (C) because such Designated Senior Indebtedness has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this paragraph), unless the holders of such Designated Senior Indebtedness or the Representative of such holders has accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments on the Notes after the end of such Payment Blockage Period. The Notes shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period. Upon any payment or distribution of the assets of the Company upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to the Company or its property, the holders of all Senior Indebtedness of the Company will be entitled to receive payment in full of such Senior Indebtedness before the Noteholders are entitled to receive any payment, and until all Senior Indebtedness of the Company is paid in full, any payment or distribution to which Noteholders would be entitled but for the subordination provisions of the Indenture will be made to holders of such Senior Indebtedness as their interests may appear. If a distribution is made to Noteholders that, due to the subordination provisions, should not have been made to them, such Noteholders are required to hold it in trust for the holders of Senior Indebtedness of the Company and pay it over to them as their interest may appear. If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of Designated Senior Indebtedness or the Representative of such holders of the acceleration. The obligations of a Subsidiary Guarantor under its Subsidiary Guarantee are senior subordinated obligations. As such, the rights of Noteholders to receive payment by a Subsidiary Guarantor pursuant to a Subsidiary Guarantee will be subordinated in right of payment to the rights of holders of Senior Indebtedness of such Subsidiary Guarantor. The terms of the subordinated provisions described above with respect to the Company's obligations under the Notes apply equally to a Subsidiary Guarantor and the obligations of such Subsidiary Guarantor under a Subsidiary Guarantee. By reason of the subordination provisions contained in the Indenture, in the event of insolvency, creditors of the Company or a Subsidiary Guarantor who are holders of Senior Indebtedness of the Company or a Subsidiary Guarantor, as the case may be, may recover more, ratably, than the Noteholders, and creditors of the Company or a Subsidiary Guarantor, as the case may be, who are not holders of Senior Indebtedness of the Company or any Subsidiary Guarantor, as the case may be, may recover less, ratably, than holders of Senior Indebtedness of the Company and may recover more, ratably, than the Noteholders. The terms of the subordination provisions described above will not apply to payments from money or the proceeds of U.S. Government Obligations held in trust by the Trustee for the payment of principal of and interest on the Notes pursuant to the provisions described under "--Defeasance." 70 BOOK-ENTRY, DELIVERY AND FORM Except as set forth below, the New Notes will initially be issued in the form of a registered Note in global form without coupons (the "Global Note"). The Global Note will be deposited with, or on behalf of, DTC and registered in the name of Cede & Co., as nominee of DTC, or will remain in the custody of the Trustee pursuant to the FAST Balance Certificate Agreement between DTC and the Trustee. The Depository has advised the Company as follows: the Depository is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and "a clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depository was created to hold securities of institutions that have accounts with the Depository ("participants") and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. The Depository's participants include securities brokers and dealers (which may include the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to the Depository's book-entry system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, whether directly or indirectly. Upon the issuance of the Global Note, the Depository will credit, on its book-entry registration and transfer system, the principal amount of the New Notes represented by such Global Note to the accounts of participants. Ownership of beneficial interests in such Global Note will be limited to participants or Persons that may hold interests through participants. Ownership of beneficial interests in the Global Note will be shown on, and the transfer of those ownership interests will be effected only through, records maintained by the Depository (with respect to participants' interest) and such participants (with respect to the owners of beneficial interests in the Global Note other than participants). The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to transfer or pledge beneficial interests in the Global Note. So long as the Depository, or its nominee, is the registered holder and owner of the Global Note, the Depository or such nominee, as the case may be, will be considered the sole legal owner and holder of the related New Notes for all purposes of such New Notes and the Indenture. Except as set forth below, owners of beneficial interests in the Global Note will not be entitled to have the New Notes represented by the Global Note registered in their names, will not receive or be entitled to receive physical delivery of certificated New Notes in definitive form and will not be considered to be the owners or holders of any New Notes under the Global Note. The Company understands that under existing industry practice, if an owner of a beneficial interest in the Global Note desires to take any action that the Depository, as the holder of the Global Note, is entitled to take, the Depository would authorize the participants to take such action, and that the participants would authorize beneficial owners owning through such participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them. Payment of principal of and interest on New Notes represented by the Global Note registered in the name of and held by the Depository or its nominee will be made to the Depository or its nominee, as the case may be, as the registered owner and holder of the Global Note. The Company expects that the Depository or its nominee, upon receipt of any payment of principal of or interest on the Global Note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Note as shown on the records of the Depository or its nominee. The Company also expects that payments by participants to owners of beneficial interests in the Global Note held through such participants will be governed by standing instructions and customary practices and will be the responsibility of such participants. The Company will not have any responsibility or liability for any aspect of the records relating to, or payments made on 71 account of, beneficial ownership interests in the Global Note for any New Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between the Depository and its participants or the relationship between such participants and the owners of beneficial interests in the Global Note owning through such participants. Unless and until it is exchanged in whole or in part for certificated New Notes in definitive form, the Global Note may not be transferred except as a whole by the Depository to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository. Although the Depository has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among participants of the Depository, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Trustee nor the Company will have any responsibility for the performance by the Depository or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. CERTIFICATED NOTES The New Notes represented by the Global Note are exchangeable for certificated New Notes in definitive form of like tenor as such New Notes in denominations of $1,000 and integral multiples thereof if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for the Global Note or if at any time the Depository ceases to be a clearing agency registered under the Exchange Act, (ii) the Company in its discretion at any time determines not to have all of the New Notes represented by the Global Note or (iii) a default entitling the holders of the New Notes to accelerate the maturity thereof has occurred and is continuing. Any New Note that is exchangeable pursuant to the preceding sentence is exchangeable for certificated New Notes issuable in authorized denominations and registered in such names as the Depository shall direct. Subject to the foregoing, the Global Note is not exchangeable, except for a Global Note of the same aggregate denomination to be registered in the name of the Depository or its nominee. REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS In connection with the initial issuance and sale of the Old Notes, the Initial Purchasers are entitled to the benefits of a registration rights agreement (the "Registration Rights Agreement") for the benefit of the Holders of the Old Notes, that the Company will, at its cost, (i) not later than August 4, 1997, file the Registration Statement of which this Prospectus forms a part with the SEC with respect to the Exchange Offer to exchange the Old Notes for a like aggregate principal amount of New Notes having terms substantially identical in all material respects to the Old Notes (except that the New Notes will not contain terms with respect to transfer restrictions) and (ii) use all reasonable efforts to cause the Registration Statement to be declared effective under the Securities Act by November 3, 1997. Upon the effectiveness of the Registration Statement, the Company will offer the New Notes in exchange for surrender of the Old Notes. The Company will keep the Exchange Offer open for not less than 20 Business Days (or longer if required by applicable law) after the date notice of the Exchange Offer is mailed to the Holders of the Old Notes. For each Old Note surrendered to the Company pursuant to the Exchange Offer, the Holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. Interest on each New Note will accrue from the last interest payment date on which interest was paid on the Old Note surrendered in exchange therefor or, if no interest has been paid on such Old Note, from May 6, 1997. Under existing SEC interpretations, the New Notes would be freely transferable by Holders other than Affiliates of the Company after the Exchange Offer without further registration under the Securities Act if the Holder of the New Notes represents that it is acquiring the New Notes in general in the ordinary course of its business, that it has no arrangement or understanding with any Person to participate in the distribution of the New Notes and that it is not an affiliate of the Company, as such terms are interpreted by the SEC; provided, however, that broker-dealers ("Participating Broker-Dealers") 72 receiving New Notes in the Exchange Offer will have a prospectus delivery requirement with respect to resales of such New Notes. Under similar SEC interpretations, Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to New Notes (other than a resale of an unsold allotment from the original sale of the Old Notes) with this Prospectus contained in the Registration Statement. Under the Registration Rights Agreement the Company is required to allow Participating Broker-Dealers and other Persons, if any, with similar prospectus delivery requirements to use this Prospectus contained in the Registration Statement in connection with the resale of such New Notes. A Holder of Old Notes (other than certain specified holders) who wishes to exchange such Old Notes for New Notes in the Exchange Offer will be required to represent, among other things, that any New Notes to be received by it will be acquired in the ordinary course of its business, that at the time of the commencement of the Exchange Offer it has no arrangement or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the New Notes and that it is not an "affiliate" of the Company, as defined in Rule 405 under the Securities Act, or if its is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. In the event that applicable interpretations of the staff of the SEC do not permit the Company to effect the Exchange Offer, or if for any other reason the Exchange Offer is not consummated by November 3, 1997, or if any Initial Purchaser so requests with respect to the Old Notes not eligible to be exchanged for New Notes in the Exchange Offer and held by it following the consummation of the Exchange Offer, or if any Holder of Old Notes (other than an exchanging dealer) is not eligible to participate in the Exchange Offer or does not receive freely tradeable New Notes in the Exchange Offer, the Company will, at its cost, (A) as promptly as practicable, file a registration statement (the "Shelf Registration Statement") covering resales of the Old Notes or the New Notes, as the case may be, (B) use all reasonable efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act and (C) keep the Shelf Registration Statement effective until May 6, 1999 . The Company will, in the event a Shelf Registration Statement is filed, among other things, provide to each Holder for whom such Shelf Registration Statement was filed copies of the prospectus which is a part of the Shelf Registration Statement, notify each such Holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Old Notes or the New Notes, as the case may be. A Holder selling such Old Notes or New Notes pursuant to the Shelf Registration Statement generally would be required to be named as a selling security Holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such Holder (including certain indemnification obligations). In addition, each Holder of the Old Notes or New Notes to be registered under the Shelf Registration Statement will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time period set forth in the Registration Rights Agreement in order to have such Holder's Old Notes or New Notes included in the Shelf Registration Statement and to benefit from the provisions regarding additional interest set forth in the following paragraph. The Registration Rights Agreement provides that if by (i) August 4, 1997, neither the Registration Statement nor the Shelf Registration Statement has been filed with the SEC; (ii) by November 3, 1997, neither the Exchange Offer is consummated nor the Shelf Registration Statement is declared effective; or (iii) after either the Registration Statement or the Shelf Registration Statement is declared effective, such Registration Statement thereafter ceases to be effective or usable (subject to certain exceptions) in connection with resales of Old Notes or New Notes in accordance with and during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (i) through (iii), a "Registration Default"), additional interest will accrue on the Old Notes and the New Notes at the rate of 0.50% per annum (increasing by 0.50% per annum at the end of each 90-day period thereafter) from and including 73 the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured; provided, however, that in no event shall such additional interest exceed 2% per annum. Such interest is payable in addition to any other interest payable from time to time with respect to the Old Notes and the New Notes. If the Company effects the Exchange Offer, it will be entitled to close the Exchange Offer 20 Business Days after the commencement thereof provided that it has accepted all Old Notes theretofore validly tendered in accordance with the terms of the Exchange Offer. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder shall have the right to require that the Company repurchase such Holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). Within 30 days following any Change of Control, the Company shall mail a notice to the Trustee and to each Holder stating: (i) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date); (ii) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); (iii) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (iv) the instructions determined by the Company, consistent with the covenant described hereunder, that a Holder must follow in order to have its Notes purchased. The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to the covenant described hereunder. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described hereunder, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the covenant described hereunder by virtue thereof. The Change of Control purchase feature is a result of negotiations between the Company and the Initial Purchasers. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that the Company would decide to do so in the future. Subject to the limitations discussed below, the Company could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Indebtedness outstanding at such time or otherwise affect the Company's capital structure or credit ratings. Restrictions on the ability of the Company to Incur additional Indebtedness are contained in the covenants described under "--Certain Covenants--Limitation on Indebtedness" and "--Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries." Such restrictions can only be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture will not contain any covenants or provisions that may afford Holders protection in the event of a highly leveraged transaction. 74 If a Change of Control offer is made, there can be no assurance that the Company will have available funds sufficient to pay the purchase price for all of the Notes that might be delivered by Holders seeking to accept the Change of Control offer. The failure of the Company to make or consummate the Change of Control offer or pay the purchase price when due will give the Trustee and the Holders the rights described under "--Events of Default." The phrase "all or substantially all" of the assets of the Company will likely be interpreted under applicable state law and will be dependent upon particular facts and circumstances. As a result, there may be a degree of uncertainty in ascertaining whether a sale or transfer of "all or substantially all" of the assets of the Company has occurred. The existence of a Holder's right to require the Company to offer to repurchase such Holder's Notes upon a Change of Control may deter a third party from acquiring the Company in a transaction which constitutes a Change of Control. The Revolving Credit Facility, under certain circumstances, prohibits the Company from purchasing any Notes prior to its expiration, and will also provide that the occurrence of certain change of control events with respect to the Company would constitute a default thereunder. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Revolving Credit Facility. In such circumstances, the subordination provisions in the Indenture would likely restrict payment to the Holders of Notes. Future Indebtedness of the Company may contain prohibitions on the occurrence of certain events that would constitute a Change of Control or require such Indebtedness to be repaid or repurchased upon a Change of Control. Moreover, the exercise by the Holders of their right to require the Company to repurchase the Notes could cause a default under such Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company's ability to pay cash to the Holders following the occurrence of a Change of Control may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The provisions under the Indenture relating to the Company's obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified with the written consent of the Holders of a majority in principal amount of the Notes. CERTAIN COVENANTS The Indenture contains covenants including, among others, the following: Limitation on Indebtedness. (a) The Company shall not Incur, directly or indirectly, any Indebtedness unless, on the date of such Incurrence, after giving pro forma effect thereto, the Consolidated EBITDA Coverage Ratio at the date of such issuance exceeds 2.0 to 1.0 if such Indebtedness is Incurred prior to May 15, 1999 and 2.25 to 1 if such Indebtedness is Incurred thereafter. (b) Notwithstanding clause (a), the Company may Incur the following Indebtedness: (i) Indebtedness Incurred pursuant to the Revolving Credit Facility; provided, however, that after giving pro forma effect to such Incurrence and the application of the net proceeds therefrom the aggregate amount of such Indebtedness outstanding at such time, together with the aggregate amount of all Indebtedness then outstanding and Incurred pursuant to clause (i) of "Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries" below, shall not exceed the greater of (x) $25.0 million and (y) the sum of (A) 50% of the gross book value of the inventory of the Company and its Restricted Subsidiaries and (B) 85% of 75 the gross book value of the accounts receivable of the Company and its Restricted Subsidiaries; (ii) Indebtedness owed to and held by a Wholly Owned or Foreign Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock that results in such Subsidiary ceasing to be a Wholly Owned or Foreign Subsidiary or any transfer of such Indebtedness (other than to a Wholly Owned or Foreign Subsidiary) shall be deemed, in each case, to constitute the issuance of such Indebtedness by the Company; (iii) the Notes and the Exchange Notes; (iv) Indebtedness (other than Indebtedness described in clause (i), (ii), or (iii) above) outstanding on Issue Date; (v) any Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (iii), (iv) or (viii) or this clause (v) or pursuant to clause (v) of the covenant described under "--Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries" below; (vi) obligations of the Company pursuant to (A) interest rate swap or similar agreements designed to protect the Company against fluctuations in interest rates in respect of Indebtedness of the Company to the extent the notional principal amount of such obligation does not exceed the aggregate principal amount of the Indebtedness to which such interest rate contracts relate and (B) foreign exchange or commodity hedge, exchange or similar agreements designed to protect the Company against fluctuations in foreign currency exchange rates or commodity prices in respect of foreign exchange or commodity exposures Incurred by the Company in the ordinary course of its business; (vii) Indebtedness of the Company consisting of obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets by the Company or any Restricted Subsidiary permitted under the Indenture; (viii) Capital Lease Obligations, Purchase Money Indebtedness and Acquired Indebtedness in an aggregate principal amount, together with the principal amount of Indebtedness Incurred pursuant to clause (x) of "Limitation of Indebtedness and Preferred Stock of Restricted Subsidiaries," not exceeding $15.0 million at any one given time outstanding; and (ix) Indebtedness in an aggregate principal amount which, together with all other Indebtedness of the Company then outstanding (other than Indebtedness permitted by clauses (i) through (viii) of this Section or clause (a)) does not exceed $10.0 million (less the amount of any Subsidiary Indebtedness and Preferred Stock then outstanding and Incurred pursuant to clause (vii) of "Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries"). (c) Notwithstanding Sections (a) and (b) above, and the provisions of "Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries," the Company shall not, and shall not permit any Restricted Subsidiary to issue any Indebtedness if the proceeds thereof are used, directly or indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Notes or the relevant Subsidiary Guarantee, as applicable, to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with the covenant entitled "-- Limitation on Indebtedness," (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. (e) For purposes of determining amounts of Indebtedness under this covenant, Indebtedness resulting from security interests granted with respect to Indebtedness otherwise included in the determination of Indebtedness, and Guarantees (and security interests with respect thereof) of, or obligations with respect to letters of credit supporting, Indebtedness otherwise included in the determination of Indebtedness shall not be included in the determination of Indebtedness. Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries. The Company shall not permit any Restricted Subsidiary to Incur, directly or indirectly, any Indebtedness or Preferred Stock except: (i) Indebtedness Incurred pursuant to the Revolving Credit Facility or any other revolving credit arrangement; provided, however, that, after giving pro forma effect to such Incurrence and the application of the proceeds therefrom, the aggregate amount of such Indebtedness outstanding at such time, together 76 with the aggregate amount of all Indebtedness then outstanding and issued pursuant to clause (b)(i) of "Limitation on Indebtedness" above, shall not exceed the greater of (x) $25.0 million and (y) the sum of (A) 50% of the gross book value of the inventory of the Company and its Restricted Subsidiaries and (B) 85% of the gross book value of the accounts receivable of the Company and its Restricted Subsidiaries; (ii) Indebtedness or Preferred Stock issued to and held by the Company or a Wholly Owned or Foreign Subsidiary; provided, however, that (A) any subsequent issuance or transfer of any Capital Stock that results in any such Subsidiary ceasing to be a Wholly Owned or Foreign Subsidiary or (B) any subsequent transfer of such Indebtedness or Preferred Stock (other than to the Company or a Wholly Owned or Foreign Subsidiary) shall be deemed, in each case, to constitute the issuance of such Indebtedness or Preferred Stock by the issuer thereof; (iii) Acquired Indebtedness of such Restricted Subsidiary; provided that after giving effect to the Incurrence of such Acquired Indebtedness, the Company could incur $1.00 of Indebtedness pursuant to clause (a) under "Limitation on Indebtedness"; (iv) Indebtedness or Preferred Stock (other than any described in clause (i), (ii) or (iii)) outstanding on the Issue Date; (v) Refinancing Indebtedness Incurred in respect of Indebtedness or Preferred Stock referred to in clause (iii), (iv) or (x) or this clause (v); provided, however, that to the extent such Refinancing Indebtedness Refinances Acquired Indebtedness or Preferred Stock of a Restricted Subsidiary that is not a Wholly Owned Subsidiary, such Refinancing Indebtedness shall be Incurred only by such Restricted Subsidiary; (vi) Obligations of a Restricted Subsidiary pursuant to (A) interest rate swap or similar agreements designed to protect such Restricted Subsidiary against fluctuations in interest rates in respect of the Indebtedness of such Restricted Subsidiary to the extent the notional principal amount of such obligation does not exceed the aggregate principal amount of the Indebtedness to which such interest rate contracts relate and (B) foreign exchange or commodity hedge, exchange or similar agreements designed to protect such Restricted Subsidiary against fluctuations in foreign currency exchange rates or commodity prices in respect of foreign exchange or commodity exposures Incurred by such Restricted Subsidiary in the ordinary course of its business; (vii) Indebtedness consisting of the Subsidiary Guarantees; (viii) Indebtedness of any Restricted Subsidiary consisting of Obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets by any Restricted Subsidiary permitted under the Indenture; (ix) Capital Lease Obligations, Purchase Money Indebtedness and Acquired Indebtedness in an aggregate principal amount not exceeding, together with the principal amount of Indebtedness Incurred pursuant to clause (viii) of "Limitation on Indebtedness," $15.0 million at any one given time outstanding; and (x) Indebtedness and Preferred Stock in an aggregate principal amount which, together with any other Indebtedness or Preferred Stock of Restricted Subsidiaries then outstanding (other than Indebtedness or Preferred Stock permitted by clauses (i) through (ix) of this Section) does not exceed $10.0 million (less the amount of any Indebtedness then outstanding and Incurred pursuant to clause (b)(ix) of "Limitation on Indebtedness"). Limitation on Liens Securing Subordinated Indebtedness. The Company will not, and will not permit any Restricted Subsidiary to, create, Incur, assume or suffer to exist any Liens of any kind (other than Permitted Liens) upon any of their respective assets or properties now owned or acquired after the date of the Indenture or any income or profits therefrom securing (i) any Indebtedness of the Company or a Restricted Subsidiary which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company or such Restricted Subsidiary, as the case may be, unless the Notes or the relevant Subsidiary Guarantee, as the case may be, are equally and ratably secured for so long as such Indebtedness is so secured; provided that, if such Indebtedness which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company or a Restricted Subsidiary is expressly subordinate or junior to the Notes or the relevant Subsidiary Guarantee, as the case may be, then the Lien securing such subordinated or junior Indebtedness shall be subordinate and junior to the Lien securing the Notes or the relevant Subsidiary Guarantee, as the case may be, with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Notes or the relevant Subsidiary Guarantee, as the case may be; provided, further, that this clause (i) shall not be applicable to any Liens securing any such Indebtedness which became Indebtedness of the Company or a Restricted Subsidiary pursuant to a transaction permitted under "--Merger and Consolidation" or Liens 77 securing Acquired Indebtedness and, in each case, which Liens were in existence at the time of such transaction or Incurrence of such Acquired Indebtedness (unless such Indebtedness was Incurred in connection with, or in contemplation of, such transaction or Incurrence) so long as such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets such Liens covered before the consummation of such transaction or Incurrence of such Acquired Indebtedness, (ii) any assumption, guarantee or other liability of the Company or any Restricted Subsidiary in respect of any Indebtedness of the Company or a Restricted Subsidiary which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company or such Restricted Subsidiary, unless the Notes or the relevant Subsidiary Guarantee, as the case may be, is equally and ratably secured for so long as such assumption, guaranty or other liability is so secured; provided that, if such subordinated Indebtedness which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company or a Restricted Subsidiary is expressly by its terms subordinate or junior to the Notes or the relevant Subsidiary Guarantee, as the case may be, then the Lien securing the assumption, guarantee or other liability of such Subsidiary shall be subordinate and junior to the Lien securing the Notes or the relevant Subsidiary Guarantee, as the case may be, with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Notes or the relevant Subsidiary Guarantee, as the case may be; provided, further, that this clause (ii) shall not be applicable to Liens securing any such assumption, guarantee or other liability which existed at the time such Subsidiary became a Subsidiary or acquired the assets subject to such Lien and which Liens were in existence at the time of such transaction (unless such assumption, guarantee or other liability was Incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or in contemplation of the acquisition of such Assets), so long as such Liens do not extend to or cover any property or assets of the Company or any Subsidiary other than the property or assets of such Person or other than the property or assets so acquired, as the case may be. Limitation on Other Senior Subordinated Indebtedness. The Company will not, and will not permit any Restricted Subsidiary to, create, Incur, assume, guarantee or in any other manner become liable with respect to any Indebtedness, other than the Notes, that is subordinate in right of payment to any Senior Indebtedness of the Company or any such Restricted Subsidiary, unless such Indebtedness is also pari passu with, or subordinate in right of payment to, the Notes, or the relevant Subsidiary Guarantee, as the case may be. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of its Capital Stock in their capacities as such (except dividends or distributions payable solely in Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to purchase its Capital Stock (other than Disqualified Stock and except dividends or distributions payable to the Company or a Restricted Subsidiary and, if a Restricted Subsidiary is not wholly owned, to all stockholders on a pro rata basis), (ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or of any direct or indirect parent of the Company, (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition and other than any required or mandatory payments, purchases or acquisitions triggered by events which would trigger the prepayments of the Notes described under "Change of Control" and "Limitation on Sales of Assets and Subsidiary Stock;" provided that such required or mandatory payments, purchases or acquisitions (x) are otherwise in accordance with the terms of the Indenture, (y) are made in accordance with the subordination provisions governing such Subordinated Obligations and (z) an offer is made to prepay the Notes in 78 accordance with the terms of the Indenture, and if such offer is accepted, payments shall be made with respect to the Notes being repurchased prior to any payment with respect to such Subordinated Obligations) or (iv) make any Investment in any Affiliate of the Company other than a Restricted Subsidiary or a Person which will become a Restricted Subsidiary as a result of any such Investment (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to as a "Restricted Payment") if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); or (2) the Company would not be permitted to issue an additional $1.00 of Indebtedness pursuant to clause (a) under "Limitation on Indebtedness" after giving pro forma effect to such Restricted Payment; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the date on which the Notes were originally issued would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter during which the Notes were originally issued to the end of the most recent fiscal quarter for which financial statements are available (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) subsequent to the date on which the Notes were originally issued (other than an issuance or sale to a Subsidiary or an employee stock ownership plan or similar trust in the benefit of employees); (C) the aggregate Net Cash Proceeds received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) to an employee stock ownership plan subsequent to the date on which the Notes were originally issued; provided, however, that if such employee stock ownership plan issues any Indebtedness, such aggregate amount shall be limited to an amount equal to any increase in the Consolidated Net Worth of the Company resulting from principal repayments made by such employee stock ownership plan with respect to Indebtedness issued by it to finance the purchase of such Capital Stock; (D) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary) subsequent to the date on which the Notes were originally issued of any Indebtedness of the Company convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or other property, distributed by the Company upon such conversion or exchange); and (E) an amount equal to the sum of (i) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, interest, repayments of loans or advances or Indebtedness or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary (provided such Unrestricted Subsidiary is otherwise eligible to become a Restricted Subsidiary); provided, however, that the foregoing sum in clause (E) shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary. (b) The provisions of Section (a) shall not prohibit: (1) any payments made in accordance with the "Use of Proceeds"; (2) any purchase or redemption of Capital Stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan); provided, however, that (A) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from clauses (3)(B) or (3)(C) of Section (a); (3) any purchase or redemption of Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be issued pursuant to the provisions of "Limitation on Indebtedness" above; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (4) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted under "Limitation on Sales of Assets and Subsidiary Stock" below; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (5) dividends paid 79 within 60 days after the date of declaration if at such date of declaration such dividend would have complied with this provision; provided, however, that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or would result therefrom); provided further, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; (6) the repurchase of shares of, or options to purchase shares of, Capital Stock of the Company or any of its Subsidiaries from employees, former employees, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such common stock; provided, however, that the aggregate amount of such repurchases shall not exceed the sum of $1.0 million (unless, with respect to a deceased Person, to the extent such repurchases are funded out of the proceeds of such Person's life insurance policy of which the Company or a Restricted Subsidiary is a beneficiary) and the Net Cash Proceeds from the sale of Capital Stock to members of management or directors of the Company and its Subsidiaries that occurs after the Issue Date (to the extent the Net Cash Proceeds from the sale of such Capital Stock have not otherwise been applied to the payment of Restricted Payments by virtue of clause (3)(C) of paragraph (a) above); provided further, however, that (A) such repurchases shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(C) of paragraph (a) above; and (7) dividend, distribution or other payment on or with respect to Capital Stock to the extent payable in shares of Capital Stock of such Person (other than Disqualified Stock). Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness or other obligation owed to the Company or a Restricted Subsidiary, (ii) make any loans or advances to the Company or (iii) transfer any of its property or assets to the Company, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness or Preferred Stock issued by such Restricted Subsidiary or predecessor thereto on or prior to the date on which such Restricted Subsidiary or predecessor thereto (or assets thereof) was acquired by the Company (other than Indebtedness or Preferred Stock issued as consideration in, or to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary (or predecessor (or assets thereof)) became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (3) any encumbrance or restriction pursuant to an agreement effecting a refinancing of Indebtedness issued pursuant to an agreement referred to in clause (1) or (2) or contained in any amendment to an agreement referred to in clause (1) or (2); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any of such refinancing agreement or amendment, taken as a whole, are no less favorable to the Noteholders than encumbrances and restrictions with respect to such Restricted Subsidiary contained in such agreements as determined in good faith by the Board of Director of the Company; (4) any such encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests or capital leases to the extent such provisions restrict the transfer of the lease; and (5) in the case of clause (iii) above, restrictions contained in security agreements securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements; (6) encumbrances or restrictions imposed by operation of applicable law; (7) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; (8) encumbrances or restrictions imposed upon the transfer, assignment or licensing or sublicensing of intellectual property including, copyrighted and patent material; and (9) encumbrances or restrictions imposed pursuant to Purchase Money Indebtedness and 80 Capital Lease Obligations Incurred pursuant to the terms of the Indenture for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired. Notwithstanding the foregoing, neither (a) customary provisions restricting subletting or assignment of any lease entered into in the ordinary course of business, consistent with past practice, nor (b) Liens permitted under the Indenture, shall in and of themselves be considered a restriction on the ability of the applicable Restricted Subsidiary to transfer such agreements or assets, as the case may be. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Disposition unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value, as determined in good faith by the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition and at least 85% of the consideration thereof received by the Company or such Restricted Subsidiary, as the case may be, is in the form of cash or cash equivalents, and (ii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) first, to the extent the Company elects (or is required by the terms of any Senior Indebtedness), to prepay, repay or purchase Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a Wholly Owned Subsidiary or such Restricted Subsidiary (in each case other than Indebtedness owed to the Company or a Subsidiary) within 60 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), at the Company's election to the investment by the Company or any Wholly Owned Subsidiary or such Restricted Subsidiary in assets to replace the assets that were the subject of such Asset Disposition or an asset that (as determined in good faith by the Board of Directors) will be used in the business of the Company and the Wholly Owned Subsidiaries existing on the Issue Date or in businesses reasonably related thereto, in each case within the later of 270 days from the date of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to purchase Notes at par (and any other Senior Subordinated Indebtedness designated by the Company, at a price no greater than par) plus accrued and unpaid interest and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), to (x) the acquisition by the Company or any Wholly Owned Subsidiary or such Restricted Subsidiary of Tangible Property to be used in the business of the Company and the Wholly Owned Subsidiaries existing on the Issue Date or such Restricted Subsidiary or in businesses reasonably related thereto or (y) the prepayment, repayment or purchase of Indebtedness (other than any Disqualified Stock) of the Company (other than Indebtedness owed to a Subsidiary of the Company) or Indebtedness of any Subsidiary (other than Indebtedness owed to the Company or a Subsidiary of the Company), in each case within 270 days from the later of the receipt of such Net Available Cash and the date the offer is consummated; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such Subsidiary shall retire such Indebtedness and cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this Section, the Company and its Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this Section except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this Section exceeds $2.5 million. Pending application of Net Available Cash pursuant to this Section, such Net Available Cash shall be invested in Permitted Investments. For the purposes of this covenant, the following are deemed to be cash or cash equivalents: (x) the express assumption of Indebtedness of the Company or any Restricted Subsidiary and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 120 days of closing the transaction. 81 (b) In the event of an Asset Disposition that requires the purchase of the Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(ii)(C) above, the Company will be required to purchase Notes tendered pursuant to an offer by the Company for the Notes (and other Senior Subordinated Indebtedness) at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture which shall include, among other things, that the offer shall remain open for 20 Business Days following commencement. If the aggregate purchase price of Notes (and any other Senior Subordinated Indebtedness) tendered pursuant to such offer is less than the Net Available Cash allotted to the purchase thereof, the Company will be required to apply the remaining Net Available Cash in accordance with clause (a)(ii)(D) above. The Company shall not be required to make such an offer to purchase Notes (and other Senior Subordinated Indebtedness) pursuant to this covenant if the Net Available Cash available therefor is less than $2.5 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to any subsequent Asset Disposition). (c) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this clause by virtue thereof. Limitation on Affiliate Transactions. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, conduct any business or enter into any transaction or series of similar transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company or any legal or beneficial owner of 5% or more of any class of Capital Stock of the Company or with an Affiliate of any such owner (other than a Restricted Subsidiary of the Company or any employee stock ownership plan for the benefit of the Company's or a Restricted Subsidiary's employees) unless the terms of such business, transaction or series of transactions are (i) set forth in writing, (ii) as favorable to the Company or such Restricted Subsidiary as terms that would be obtainable at the time for a comparable transaction or series of similar transactions in arms-length dealings with an unrelated third Person and (iii) the disinterested members, if any, of the Board of Directors has, by resolution, determined in good faith that such business or transaction or series of transactions meets the criteria set forth in (ii) above; provided, however, that if such transaction involves an amount in excess of $2.5 million, the Company shall also obtain from a nationally recognized expert with experience in appraising the terms and conditions of the type of business or transactions an opinion that such transaction is fair from a financial point of view to the Company or its Restricted Subsidiary, as the case may be. (b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any Restricted Payment permitted to be made pursuant to the covenant described under "--Limitation on Restricted Payments," or any payment or transaction specifically excepted from the definition of Restricted Payment, (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors or the board of directors of the relevant Restricted Subsidiary, (iii) the grant of stock options or similar rights to employees and directors pursuant to plans approved by the Board of Directors or the board of directors of the relevant Restricted Subsidiary, (iv) loans or advances to officers, directors or employees in the ordinary course of business, (v) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries who are not employees of the Company or its Restricted Subsidiaries, (vi) any Affiliate transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, (vii) indemnification or insurance provided to officers or directors of the Company 82 or any Subsidiary approved in good faith by the Board of Directors; (viii) payment of compensation and benefits to directors, officers and employees of the Company and its Subsidiaries approved in good faith by the Board of Directors; (ix) sales of Capital Stock of the Company to Affiliates; (x) fees or expense reimbursements paid to Windward and its Affiliates in accordance with the provisions of that certain Financial Services Advisory Agreement between the Company and Windward or that certain Fee Letter between the Company and Windward both dated as of February 14, 1997, in each case, as in effect on such date, without amendment; (xi) the purchase of or the payment of Indebtedness of or monies owed by the Company or any of its Restricted Subsidiaries for goods or materials purchased, or services received, in the ordinary course of business or (xii) customary investment banking fees to Credit Suisse First Boston. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. The Company shall not sell or otherwise dispose of any Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any of its Capital Stock except (i) to the Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving effect to such issuance, sale or other disposition, neither the Company nor any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary, (iii) if, immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary (x) would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect thereto would have been permitted to be made under the covenant described under "--Limitation on Restricted Payments" if made on the date of such issuance, sale or other disposition or (y) would remain a Restricted Subsidiary or (v) directors' qualifying shares. Merger and Consolidation. The Company shall not, in a single transaction or a series of related transactions, consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets (computed on a consolidated basis) to, any Person, unless: (i) the resulting, surviving or transferee Person (if not the Company) shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and such Person shall expressly assume, by an indenture supplemental to the Indenture, executed and delivered to the Trustee, all the obligations of the Company under the Notes and this Indenture; (ii) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person or any Subsidiary as a result of such transaction as having been Incurred by such Person or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the resulting, surviving or transferee Person would be able to Incur at least $1.00 of Indebtedness pursuant to Section (a) of the "Limitation on Indebtedness"; (iv) immediately after giving effect to such transaction, the resulting, surviving or transferee Person shall have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company prior to such transaction; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and if a supplemental indenture is required, an Opinion of Counsel (in no event, however, shall such Opinion of Counsel cover financial ratios, the solvency of any Person or any other financial or statistical data or information), each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture. The Successor Company shall be the successor to the Company and shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, and the predecessor company, in the case of a conveyance, transfer or lease, shall be released from the obligation to pay the principal of and interest on the Notes. The Company will not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to any Person unless: (i) the resulting, surviving or transferee Person (if not such Subsidiary) shall be a Person organized and existing under the laws of the jurisdiction under which such Subsidiary was organized or under the laws of the United States of America, or any State thereof or the District of Columbia, and such Person shall expressly assume, by executing a Subsidiary Guarantee, all the 83 obligations of such Subsidiary, if any, under its Subsidiary Guarantee; (ii) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Company would be able to Incur at least $1.00 of Indebtedness pursuant to the "Limitation on Indebtedness"; and (iv) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel (in no event, however, shall such Opinion of Counsel cover financial ratios, the solvency of any Person or any other financial or statistical data or information), each stating that such consolidation, merger or transfer and, such Subsidiary Guarantee, if any, complies with the Indenture. The provisions of clauses (i), (ii) and (iii) above shall not apply to any one or more transactions which constitute an Asset Disposition if the Company has complied with the applicable provisions of the covenant described under "--Limitation on Sales of Assets and Subsidiary Stock" above. The phrase "all or substantially all" of the assets of the Company will likely be interpreted under applicable state law and will be dependent upon particular facts and circumstances. As a result, there may be a degree of uncertainty in ascertaining whether a sale or transfer of "all or substantially all" of the assets of the Company has occurred. Future Guarantors. In the event that, after the Issue Date, any Restricted Subsidiary Incurs any Indebtedness pursuant to clause (i) of the covenant described under "--Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries" above, the Company shall cause such Restricted Subsidiary to Guarantee the Notes pursuant to a Subsidiary Guarantee on the terms and conditions set forth in the Indenture and shall cause all Indebtedness of such Restricted Subsidiary owing to the Company or any other Subsidiary of the Company and not previously discharged (and not pledged under the Revolving Credit Facility) to be converted into Capital Stock of such Restricted Subsidiary (other than Disqualified Stock). Limitation on Designations of Unrestricted Subsidiaries. The Indenture will provide that the Company may designate any Subsidiary of the Company (other than a Subsidiary Guarantor) as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if: (i) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (ii) either (x) the assets of such Subsidiary do not exceed $1,000 or (y) the Company would be permitted under the Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to fair market value of the Capital Stock of such Subsidiary as determined in good faith by the Board of Directors on such date; and (iii) the Company would be permitted under the Indenture to Incur $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under "--Limitation on Restricted Payments" at the time of Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to the covenant described under "--Limitation on Restricted Payments" for all purposes of the Indenture in the Designation Amount. The Indenture will further provide that the Company shall not and shall not permit any Restricted Subsidiary to, at any time (a) provide credit support for, or a guarantee of, any Indebtedness of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness), (b) be directly or indirectly liable for any Indebtedness which provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary 84 (including any right to take enforcement action against such Unrestricted Subsidiary), except in the case of clause (a) or (b) to the extent permitted under the covenant described under "--Limitation on Restricted Payments". The Indenture will further provide that the Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: (i) no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if Incurred at such time, have been permitted to be Incurred for all purposes of the Indenture and for all purposes of the Indenture shall be deemed to have been Incurred at such time: All Designations and Revocations must be evidenced by resolutions of the Board of Directors delivered to the Trustee certifying compliance with the foregoing provisions. Notwithstanding the foregoing, no Subsidiary that is a Subsidiary Guarantor as of the Issue Date shall be permitted to become an Unrestricted Subsidiary. SEC Reports. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC and provide within 15 days to the Trustee and Noteholders such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections; provided that prior to the consummation of the Exchange Offer and the issuance of the Exchange Notes, the Company will mail to the Trustee and the Noteholders substantially the same information that would have been required by such Sections. DEFAULTS An Event of Default is defined in the Indenture as (i) a default in the payment of interest on the Notes when due, continued for 30 days, (ii) a default in the payment of principal of any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise, (iii) the failure by the Company to comply with its obligations under "--Certain Covenants--Merger and Consolidation" above, (iv) the failure by the Company to comply for 30 days after notice with any of its obligations in the covenants described above under "Change of Control" (other than a failure to purchase Notes) or under "--Certain Covenants--Limitation on Indebtedness," "--Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries," "--Limitation on Liens Securing Subordinated Indebtedness," "-- Limitation on other Senior Subordinated Indebtedness," "--Limitation on Restricted Payments," "--Limitation on Restrictions on Distributions from Restricted Subsidiaries," "--Limitation on Sales of Assets and Subsidiary Stock (other than a failure to purchase the Notes)," "--Limitation on Affiliate Transactions," "--Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries," "--Future Guarantors," "--Limitation on Designations of Unrestricted Subsidiaries," or "--SEC Reports," (v) the failure by the Company to comply for 60 days after notice with its other agreements contained in the Indenture, (vi) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the Holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $5 million (the "cross acceleration provision"), (vii) certain events of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary (the "bankruptcy provisions"), (viii) any judgment or decree for the payment of money in excess of $5 million is rendered against the Company or any Significant Subsidiary and is not discharged and either (A) an enforcement proceeding has been commenced by any creditor upon such 85 judgment or decree or (B) there is a period of 60 days following such judgment during which such judgment or decree is not discharged, waived or the execution thereof stayed, or (ix) any Subsidiary Guarantee by a Significant Subsidiary ceases to be in full force and effect (other than in accordance with the terms of the Subsidiary Guarantee) or any Subsidiary Guarantor that is a Significant Subsidiary denies or disaffirms its obligations under its Subsidiary Guarantee. However, a default under clause (iv), (v) or (viii) will not constitute an Event of Default until the Trustee or the Holders of 25% in principal amount of the outstanding Notes notify the Company of the default and the Company does not cure such default within the time specified after receipt of such notice. If an Event of Default (other than the bankruptcy provisions relating to the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default relating to the bankruptcy provisions relating to the Company occurs and is continuing, the principal of and interest on all the Notes will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given the Trustee notice that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy, (iii) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity and (v) the Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each Holder notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of or interest on any Note, the Trustee may withhold notice if and so long as the board of directors, the executive committee or a committee of its trust officers determines that withholding notice is not opposed to the interest of the Holders. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Company also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof. AMENDMENTS AND WAIVERS Subject to certain exceptions, the Indenture may be amended with the consent of the Holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with 86 a tender offer or exchange for the Notes) and any past default or compliance with any provisions may also be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Without the consent of each Holder of an outstanding Note affected thereby, no amendment may (i) reduce the amount of Notes whose Holders must consent to an amendment, (ii) reduce the rate of or extend the time for payment of interest on any Note, (iii) reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed as described under "--Optional Redemption" above, (v) make any Note payable in money other than that stated in the Note, (vi) impair the right of any Holder to receive payment of principal of and interest on such Holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Notes, (vii) make any change in the amendment provisions which require each Holder's consent or in the waiver provisions, (viii) make any change to the subordination provisions of the Indenture that would adversely affect the Holders, or (ix) make any change in any Subsidiary Guarantee that would adversely affect the Holders. Without the consent of any Holder, the Company and the Trustee may amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to provide for the assumption by a successor corporation of the obligations of the Company under the Indenture, to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add guarantees with respect to the Notes, to secure the Notes, to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power conferred upon the Company, to make any change that does not adversely affect the rights of any Holder or to comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any Holder of Senior Indebtedness of the Company or any Restricted Subsidiary then outstanding unless the Holders of such Senior Indebtedness (or their Representative) consent to such change. The consent of the Holders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture becomes effective, the Company is required to mail to Holders a notice briefly describing such amendment. However, the failure to give such notice to all Holders, or any defect therein, will not impair or affect the validity of the amendment. TRANSFER The Notes will be issued in registered form and will be transferable only upon the surrender of the Notes being transferred for registration of transfer. The Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection with certain transfers and exchanges. DEFEASANCE The Company at its option at any time may terminate all of its obligations under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. In addition, the Company at its option at any time may terminate its obligations under "Change of Control" and under the covenants described under "--Certain Covenants" (other than the covenant described under "--Merger and Consolidation") (and any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes), the operation of the cross acceleration provision, the 87 bankruptcy provisions with respect to Significant Subsidiaries and the judgment default provision described under "--Defaults" above and the limitations contained in clauses (iii) and (iv) of the first paragraph under "--Certain Covenants--Merger and Consolidation" above ("covenant defeasance"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (iv), (vi), (vii) (with respect only to Significant Subsidiaries) or (viii) under "--Defaults" above or because of the failure of the Company to comply with clause (iii) or (iv) of the first paragraph under "--Certain Covenants--Merger and Consolidation" above. In order to exercise either defeasance option, the Company must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law). CONCERNING THE TRUSTEE IBJ Schroder Bank & Trust Company is to be the Trustee under the Indenture and has been appointed by the Company as Registrar and Paying Agent with regard to the Notes. Such bank may also act as a depository of funds for, or make loans to and perform other services for, the Company or its Affiliates in the ordinary course of business in the future. The Holders of a majority in principal amount of the outstanding Notes have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that if an Event of Default occurs (and is not cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense and then only to the extent required by the terms of the Indenture. The Trustee may resign at any time or may be removed by the Company. If the Trustee resigns, is removed or becomes incapable of acting as Trustee or if a vacancy occurs in the office of the Trustee for any cause, a successor Trustee shall be appointed in accordance with the provisions of the Indenture. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and the Indenture. The Indenture also contains certain limitations on the right of the Trustee, as a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received by it in respect of any such claims, as security or otherwise. GOVERNING LAW The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. 88 CERTAIN DEFINITIONS "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries (i) existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Restricted Subsidiaries or (ii) assumed in connection with the acquisition of assets from such Person, and in each case not Incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "Affiliate" of any specified Person means (i) any other Person which, directly or indirectly, is in control of, is controlled by or is under common control with such specified Person or (ii) any other Person who is a director or officer (A) of such specified Person, (B) of any subsidiary of such specified Person or (C) of any Person described in clause (i) above. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the provisions described in "Limitation on Restricted Payments," and "Limitation on Affiliate Transactions" only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger or consolidation in excess of $250,000 (each referred to for the purposes of this definition as a "disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary or (iii) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and (iii) above, (w) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (x) for purposes of the covenant described under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a disposition that constitutes a Restricted Payment permitted by the covenant described under "--Certain Covenants--Limitation on Restricted Payments" or a disposition specifically excepted from the definition of Restricted Payment), (y) settlement, surrender, waiver or release of contract rights or contract, tort or other claims and (z) grant of licenses of intellectual property including patent, trademark and know-how. "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Bank Indebtedness" means all Obligations pursuant to the Revolving Credit Facility and reimbursement of letters of credit issued pursuant to the Revolving Credit Facility. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means each day which is not a Legal Holiday. "Capital Lease Obligations" of a Person means any obligation which is required to be classified and accounted for as a capital lease on the face of a balance sheet of such Person prepared in accordance with GAAP; the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. 89 "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated), including any Preferred Stock, but excluding any debt securities convertible into or exchangeable for such equity. "Change of Control" means the occurrence of any of the following events: (i) prior to the first public offering of common stock of the Company, the Permitted Holders cease to be the "beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a majority in the aggregate of the total voting power of the Voting Stock of the Company, whether as a result of issuance of securities of the Company, any merger, consolidation, liquidation or dissolution of the Company, any direct or indirect transfer of securities or otherwise (for purposes of this clause (i) and clause (ii) below, the Permitted Holders shall be deemed to beneficially own any Voting Stock of a corporation (the "specified corporation") held by any other corporation (the "parent corporation") so long as the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent corporation); (ii) (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in clause (i) above except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Company; and (B) the Permitted Holders "beneficially own" (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company than such other person 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 the Company (for the purposes of this clause (ii), such other person shall be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation, if such other person "beneficially owns" (as defined in this clause (ii)), directly or indirectly, more than 30% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders "beneficially own" (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation 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 such parent corporation); (iii) (A) another corporation merges into the Company or the Company consolidates with or merges into any other corporation, or (B) the Company conveys, transfers or leases all or substantially all its assets (computed on a consolidated basis) to any person or group, in one transaction or a series of transaction other than any conveyance, transfer or lease between the Company and a Wholly Owned Subsidiary of the Company, in each case in one transaction or a series of related transactions with the effect that either (x) immediately after such transaction any person or entity or group (as so defined) of persons or entities (other than a Permitted Holder) shall have become the beneficial owner of securities of the surviving corporation of such merger or consolidation representing a majority of the combined voting power of the outstanding securities of the surviving corporation ordinarily having the right to vote in the election of directors or (y) the securities of the Company that are outstanding immediately prior to such transaction and which represent 100% of the combined voting power of the securities of the Company ordinarily having the right to vote in the election of directors are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at least a majority of the combined voting power of the securities of the surviving corporation ordinarily having the right vote in the election of directors; or 90 (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of 60% of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office. "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated EBITDA Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters for which financial statements are available to (ii) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (1) if the Company or any Restricted Subsidiary has issued any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated EBITDA Coverage Ratio is an issuance of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been issued on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be (including Capital Stock of a Subsidiary) reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period, and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Dispositions for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets (including Capital Stock of a Subsidiary), including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the issuance of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period, and (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition or Investment occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, and the amount of Consolidated Interest Expense associated with any Indebtedness issued in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Protection Agreement applicable to such Indebtedness if such Interest Rate Protection Agreement has a remaining term in excess of 12 months). For purposes of this definition, whenever pro 91 forma effect is to be given to any Indebtedness Incurred pursuant to a revolving credit facility the amount outstanding under such Indebtedness shall be equal to the average of the lesser of (computed on a daily basis) (1) the amount outstanding during the period commencing on the first day of the first of the four most recent fiscal quarters for which financial statements are available and ending on the date of determination and (2) the total available commitment under such revolving credit facility as of the date of determination (if such commitment has been permanently reduced). "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such interest expense but Incurred by the Company or its Restricted Subsidiaries, (i) interest expense attributable to capital leases, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest payments, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) net costs under Hedging Obligations (including amortization of fees), (vii) Preferred Stock dividends in respect of all Preferred Stock held by Persons other than the Company or a Wholly Owned Subsidiary, (viii) interest Incurred in connection with investments in discontinued operations, (ix) interest actually paid by the Company or any of its consolidated subsidiaries under any Guarantee of Indebtedness or other obligation of any other Person and (x) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income of the Company and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income (i) any net income of any Person if such Person is not a Restricted Subsidiary, except that (A) the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income, but only to the extent of the Company's net Investment in such Person; (ii) any net income of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Subsidiary, directly or indirectly, to the Company, except that (A) the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (but not loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) non-cash charges relating to the any compensation plan, including, but not limited to stock option and stock appreciation rights plan; provided, that actual cash amounts paid in connection with 92 any such plan which have been previously excluded under this clause (v) shall be included in determination of Consolidated Net Income when such amount are paid; (vi) non-cash charges related to the Recapitalization and all charges related to the issuance of the Notes or the use of proceeds thereof; and (vii) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" of any Person means the total of the amounts shown on the balance sheet of such Person and its consolidated subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of such Person for which financial statements of such Person are available, as (i) the par or stated value of all outstanding Capital Stock of such Person plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Deferred Amount" means the $6.0 million deposited pursuant to that certain Deferred Purchase Price and Security Agreement dated as of February 14, 1997 among the Company and the Buyers, Sellers and the Escrow Agent (each as defined therein). "Depository" means The Depository Trust Company, its nominees and their respective successors. "Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii) any other Senior Indebtedness of the Company which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $25 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Notes; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions described under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" and "--Certain Covenants--Change of Control." "EBITDA" for any period means the Consolidated Net Income for such period, plus the following (but without duplication) to the extent deducted in calculating such Consolidated Net Income for such period: (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization expense and (v) all other non-cash charges (other than any recurring non-cash charges to the extent such charges represent an accrual of or reserve for cash expenditures in any future period). Notwithstanding clause (v) above, there shall be deducted from EBITDA in any period any cash expended in such period that funds a non-recurring, non-cash charge accrued or reserved in a prior period which was added back to EBITDA pursuant to clause (v) in such prior period. For the purpose of the calculation of EBITDA, net cash payments by the Company that are reimbursed from the Deferred Amount shall be excluded from the calculation. 93 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Foreign Subsidiary" means a Restricted Subsidiary whose assets are located, or whose operations are conducted primarily outside of the United States or the majority of whose sales are to Persons outside the United States. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the date of the Indenture, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any interest rate swap agreement, foreign currency exchange agreement, interest rate collar agreement, option or futures contract or other similar agreement or arrangement designed to protect such Person against changes in interest rates or foreign exchange rates. "Holder" or "Noteholder" means the Person in whose name a Note is registered on the Registrar's books. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for Indebtedness; provided, however, that any Indebtedness of a Person existing at the time such Person becomes a subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall be deemed the Incurrence of Indebtedness. "Indebtedness" of any Person means, without duplication, (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capital Lease Obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day 94 following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock (but excluding any accrued dividends); (vi) all Hedging Obligations; (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee (other than in each case by reason of activities described in the proviso to the definition of "Guarantee"); and (viii) all obligations of the type referred to in clauses (i) through (vii) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the amount of liability required by GAAP to be accrued or reflected on the most recently published balance sheet of such Person. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value to be determined in good faith by the Board of Directors. For purposes hereof, the amount of any Indebtedness issued with original issue discount shall be the original purchase price plus accrued interest, provided, however, that such accretion shall not be deemed an incurrence of Indebtedness. "Interest Rate Protection Agreement" means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the Person making the advance or loan) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary," the definition of "Restricted Payment" and the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments," (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that if such designation is made in connection with the acquisition of such Subsidiary or the assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be deemed to be the consideration paid in connection with such acquisition; provided further, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent investment in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation, and (ii) any property transferred to 95 or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "issue" means issue, assume, Guarantee, Incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be issued by such Subsidiary at the time it becomes a Subsidiary; and the term "issuance" has a corresponding meaning. "Issue Date" means the date on which the Old Notes were originally issued. "Lien" means any mortgage, pledge, security interest, conditional sale or other title retention agreement or other similar lien. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other non-cash form) therefrom, in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses Incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition, including, without limitation, pension and other post- employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Disposition. Further, with respect to an Asset Disposition by a Subsidiary which is not a Wholly Owned Subsidiary, Net Available Cash shall be reduced pro rata for the portion of the equity of such Subsidiary which is not owned by the Company. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees and expenses actually Incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Obligations" means with respect to any Indebtedness all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, and other amounts payable pursuant to the documentation governing such Indebtedness. "Permitted Holders" means Andrew Goldfarb, Windward Capital Associates, L.P., Windward/Park HCC, L.L.C., Windward/Merchant, L.P., Windward/Merban, L.P. or any of their respective members or partners or any Affiliate of any of the foregoing. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (iii) Temporary 96 Cash Investments; (iv) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (v) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vi) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary; (vii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; and (viii) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to the covenant described under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock." "Permitted Liens" means, with respect to any Person, (a) pledges or deposits by such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits or cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (b) Liens imposed by law, including carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings; or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review; (c) Liens for taxes, assessments or other governmental charges not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings provided appropriate reserves have been taken on the books of the Company; (d) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit do not constitute Indebtedness; (e) encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or liens incidental to the conduct of the business of such Person or to the ownership of its properties which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (f) Liens securing an Interest Rate Protection Agreement so long as the related Indebtedness is, and is permitted to be under the Indenture, secured by a Lien on the same property securing the Interest Rate Protection Agreement; and (g) leases and subleases of real property which do not materially interfere with the ordinary conduct of the business of the Company or any of its Subsidiaries; (h) judgement Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (i) Liens for the purpose of securing the payment (or the refinancing of the payment) of all or a part of any Purchase Money Indebtedness relating to assets or property acquired or constructed in the ordinary course of business provided that (x) the aggregate principal amount of Indebtedness secured by such Liens shall not exceed the cost of the assets or property so acquired or constructed and (y) such Liens shall not encumber any other assets or property of the Company or any Restricted Subsidiary other than such Assets or property and assets affixed or appurtenant thereto; (j) Liens arising solely by virtue of any statutory or common law provision relating to banker's Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor expository institution; provided that (x) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the Federal Reserve Board, and (y) such deposit account is not intended by the Company or any Subsidiary to provide collateral to the depository institution; and (k) Liens 97 arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Subsidiaries in the ordinary course of business. "Person" means any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Public Equity Offering" means an underwritten primary or combined primary and secondary public offering of common stock of the Company pursuant to an effective registration abatement under the Securities Act. "Public Market" means any time after (x) a Public Equity Offering has been consummated and (y) at least 20% of the total issued and outstanding common stock of the Company has been distributed by means of an effective registration statement under the Securities Act or sales pursuant to Rule 144 under the Securities Act. "Purchase Money Indebtedness" means any Indebtedness of a Person to any seller or other Person incurred to finance the acquisition (including in the case of a Capitalized Lease Obligation, the lease) of any real or personal tangible property which, in the reasonable good faith judgment of the Board of Directors, is directly related to the business of the Company or any Subsidiary and which is incurred substantially concurrently with such acquisition and is secured only by the assets so financed. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with the Indenture, including Indebtedness that Refinances Refinancing Indebtedness; provided, however, that (i) such Refinancing Indebtedness has a Stated Maturity no earlier than the earlier of (x) the Stated Maturity of the Indebtedness being Refinanced and (y) the Stated Maturity of the Notes, (ii) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less that the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus unpaid accrued interest and any premium and defeasance costs) under the Indebtedness being Refinanced, plus actual fees and expenses Incurred in connection with the Refinancing; provided, further, however, that (x) Refinancing Indebtedness shall not include (1) Indebtedness of a Subsidiary that is not a Wholly Owned Subsidiary that Refinances Indebtedness of the Company or (2) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary and (y) if the Indebtedness being Refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness shall be subordinate to the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Related Business" means any business related, ancillary or complementary to the businesses of the Company and the Restricted Subsidiaries on the Issue Date. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Indebtedness; provided that if, and for so long as, any Designated Senior 98 Indebtedness lacks such a representative, then the Representative for such Designated Senior Indebtedness shall at all times be the holders of a majority in outstanding principal amount of such Designated Senior Indebtedness in respect of any Designated Senior Indebtedness. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Revolving Credit Facility" means the credit agreement dated February 14, 1997, as amended on May 6, 1997, by and among the Company, certain of its subsidiaries, certain financial institutions and Fleet Capital Corporation, as agent, providing for an aggregate $20.0 million revolving credit facility including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as such credit agreement and/or related documents may be further amended, restated, supplemented, renewed, replaced or otherwise modified from time to time whether or not with the same agent, trustee, representative lenders or holders, and irrespective of any changes in the terms and conditions thereof. Without limiting the generality of the foregoing, the term "Revolving Credit Facility" shall include agreements in respect of reimbursement of letters of credit issued pursuant to the Revolving Credit Facility and agreements in respect of Hedging Obligations with lenders party to the Revolving Credit Facility and shall also include any amendment, amendment and restatement, renewal, extension, restructuring, supplement or modification to any Revolving Credit Facility and all refundings, refinancings (in whole or in part) and replacements of any Revolving Credit Facility, including any agreement (i) extending the maturity of any Indebtedness incurred thereunder or contemplated thereby, (ii) adding or deleting borrowers or guarantors thereunder, so long as borrowers and issuers include one or more of the Company and its Restricted Subsidiaries and their respective successors and assigns. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of any Person secured by a Lien. "Senior Indebtedness" means with respect to any Person (x) Bank Indebtedness and (y) any other Indebtedness other than (1) any obligation of such Person to any subsidiary of such Person, (2) any liability of such Person for federal, state, local or other taxes owed or owing by such Person, (3) any accounts payable or other liability of such Person to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness, Guarantee or obligation of such Person which is, expressly by its terms, subordinate or junior in any respect to any other Indebtedness, Guarantee or obligation of such Person, (5) that portion of any Indebtedness of such Person which at the time of issuance is issued in violation of the Indenture or (6) Indebtedness of such Person represented by Disqualified Capital Stock. "Senior Subordinated Indebtedness" means the Notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness. "Significant Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the final date specified in such security as the fixed date on which all outstanding principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company or any Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of 99 payment to the Notes or the relevant Subsidiary Guarantee, as applicable, pursuant to a written agreement to that effect. "Subsidiary" means any corporation, association, partnership, limited liability company or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) the Company, (ii) the Company and one or more Subsidiaries or (iii) one or more Subsidiaries. "Subsidiary Guarantee" means a Guarantee by a Subsidiary Guarantor of the Company's obligations with respect to the Notes. "Subsidiary Guarantor" means any Subsidiary of the Company that Guarantees the Company's Obligations with respect to the Notes. "Tangible Property" means all land, buildings, machinery and equipment and leasehold interests and improvements which would be reflected on a balance sheet of the Company prepared in accordance with generally accepted accounting principles, excluding (i) all such tangible property located outside the United States of America, (ii) all rights, contracts and other intangible assets of any nature whatsoever and (iii) all inventories and other current assets. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof. (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50.0 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor. (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above. (iv) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1." (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group, and (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. "Trustee" means the party named as such in the Indenture until a successor replaces it and, thereafter, means the successor. 100 "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) as in effect on the date of this Indenture. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be or shall have been designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, the Company or any other Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated and subject to the "Limitation on Designations of Unrestricted Subsidiaries;" provided, however, that the Subsidiary so designated and each of its Subsidiaries has not at the time of such designation or thereafter Incurred any Indebtedness pursuant to which the Lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) if such Unrestricted Subsidiary at such time has Indebtedness, the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "-- Certain Covenants -- Limitation on Indebtedness" and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced by the Company to the Trustee by promptly filing with the Trustee a copy of the board resolution giving effect to such designation and an officer's certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares and shares held by other Persons to the extent such Shares are required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary) is owned by the Company or one or more Wholly Owned Subsidiaries. 101 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS The exchange of Old Notes for New Notes pursuant to the Exchange Offer should not be considered a taxable exchange for U.S. federal income tax purposes because the New Notes will not differ materially in kind or extent from the Old Notes and because the exchange will occur by operation of the terms of the Old Notes. Accordingly, such exchange should have no federal income tax consequences to holders of Old Notes. A holder's adjusted tax basis and holding period in a New Note will be the same as such holder's adjusted tax basis and holding period in the Old Note exchanged therefor. Holders considering an exchange of Old Notes for New Notes should consult their own tax advisors concerning the U.S. federal income tax considerations in light of their particular situations as well as any considerations arising under state, local, foreign and other tax laws or subsequent versions thereof. PLAN OF DISTRIBUTION Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of 90 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 1997, all dealers effecting transactions in the New Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the Expiration Date, the Company will promptly send additional copies of the Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such document in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer other than commissions or concessions of any brokers or dealers and will indemnify the holders of the Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 102 LEGAL MATTERS Certain legal matters with respect to the issuance and sale of the New Notes will be passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Skadden, Arps, Slate, Meagher & Flom LLP has from time to time represented the Windward Group in certain matters unrelated to the Offering and represented the Windward Group in connection with the Recapitalization. Skadden, Arps, Slate, Meagher & Flom LLP may continue to represent the Windward Group and the Company in the future. Skadden, Arps, Slate, Meagher & Flom LLP has from time to time represented Credit Suisse First Boston Corporation and its affiliates and may continue to do so in the future. EXPERTS The consolidated financial statements of HCC Industries Inc. and its subsidiaries for the years ended April 1, 1995, March 30, 1996 and March 29, 1997 included in this Prospectus and Registration Statement, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, as stated in their report included herein given on the authority of that firm as experts in accounting and auditing. 103 HCC INDUSTRIES INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE ----------------
PAGE ---- FINANCIAL STATEMENTS: Report of Independent Accountants......................................... F-2 Consolidated Balance Sheets as of March 29, 1997 and March 30, 1996 ...... F-3 Consolidated Statements of Earnings for the Years Ended March 29, 1997, March 30, 1996 and April 1, 1995........................................................ F-4 Consolidated Statements of Stockholders' Equity for the Years Ended March 29, 1997, March 30, 1996 and April 1, 1995......................................... F-5 Consolidated Statements of Cash Flows for the Years Ended March 29, 1997, March 30, 1996 and April 1, 1995......................................... F-6 Notes to Consolidated Financial Statements................................ F-7 FINANCIAL STATEMENT SCHEDULE: Schedule II--Valuation and Qualifying Accounts and Reserves............... S-1
Separate financial statements of the Subsidiary Guarantors are not included in this Prospectus because the guarantee obligations of the Subsidiary Guarantors are joint and several and because their aggregate assets, liabilities, earnings, and equity are substantially equivalent to the total assets, liabilities, earnings and equity of HCC Industries Inc. and its subsidiaries on a consolidated basis. F-1 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Stockholders HCC Industries Inc. and Subsidiaries Rosemead, California We have audited the consolidated financial statements and the financial statement schedule of HCC Industries Inc. and Subsidiaries (the "Company") listed in the Index on page F-1 of this Registration Statement on Form S-4. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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 misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of HCC Industries Inc. and Subsidiaries as of March 29, 1997 and March 30, 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 29, 1997 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements as a whole, present fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Los Angeles, California May 30, 1997, except for Note 11, as to which date is June 20, 1997 F-2 HCC INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH MARCH 29, 30, 1997 1996 -------- ------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................... $ 6,841 $ 6,647 Restricted cash............................................. 69,282 -- Trade accounts receivable, less allowance for doubtful accounts of $40 (1997 and 1996)............................................ 6,904 7,755 Inventories................................................. 4,376 4,053 Prepaid and deferred income taxes........................... 533 180 Other current assets........................................ 223 123 -------- ------- Total current assets...................................... 88,159 18,758 PROPERTY, PLANT AND EQUIPMENT, NET.......................... 12,264 10,090 OTHER ASSETS: Excess of purchase price over net assets acquired, net...... 4,507 4,696 Deferred financing costs, net............................... 1,827 70 Deferred income taxes....................................... 3,269 -- Restricted cash............................................. 6,039 -- Other....................................................... 76 54 -------- ------- TOTAL ASSETS................................................ $116,141 $33,668 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long-term debt........................... $ 3,537 $ 1,326 Accounts payable............................................ 2,553 1,911 Accrued liabilities......................................... 5,193 3,970 Due to stockholders......................................... 69,282 -- Income taxes payable........................................ -- 1,164 -------- ------- Total current liabilities................................. 80,565 8,371 LONG TERM LIABILITIES: Deferred income taxes....................................... -- 601 Long-term debt, net of current portion...................... 78,916 9,811 Other long-term liabilities................................. 10,000 -- -------- ------- 169,481 18,783 -------- ------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT): Common stock; $.10 par value; authorized 550,000 shares, issued and outstanding 143,569 shares at March 29, 1997 and 499,866 shares at March 30, 1996........................... 14 50 Additional paid-in capital.................................. -- 1,757 Less: Note receivable from stockholder...................... -- (175) Retained earnings (deficit)................................. (53,354) 13,253 -------- ------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT)........................ (53,340) 14,885 -------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)........ $116,141 $33,668 ======== =======
The accompanying notes are an integral part of these consolidated financial statements. F-3 HCC INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE YEAR ENDED ------------------------- MARCH MARCH 29, 30, APRIL 1997 1996 1, 1995 ------- ------- ------- NET SALES........................................... $56,683 $52,207 $40,307 Cost of goods sold.................................. 35,729 32,562 25,423 ------- ------- ------- GROSS PROFIT........................................ 20,954 19,645 14,884 Selling, general and administrative expenses........ 9,308 9,107 6,274 Non-recurring expense............................... 10,000 --- ---- ------- ------- ------- EARNINGS FROM OPERATIONS............................ 1,646 10,538 8,610 ------- ------- ------- OTHER INCOME (EXPENSE): Interest and other income........................... 479 279 136 Interest expense.................................... (2,946) (1,924) (1,715) Loss on sale of building............................ --- --- (1,369) ------- ------- ------- Total other expenses, net......................... (2,467) (1,645) (2,948) ------- ------- ------- Earnings (loss) before taxes and extraordinary item............................................. (821) 8,893 5,662 Taxes (benefit) on earnings (loss).................. (293) 3,230 1,810 ------- ------- ------- Earnings (loss) before extraordinary item......... (528) 5,663 3,852 Extraordinary loss on retirement of debt, net of tax benefit of $657.............................. (1,186) --- ---- ------- ------- ------- NET EARNINGS (LOSS)................................. $(1,714) $ 5,663 $ 3,852 ======= ======= ======= EARNINGS (LOSS) PER SHARE BEFORE EXTRAORDINARY LOSS. $ (1.46) $ 11.44 $ 7.76 Extraordinary loss per share........................ (3.29) --- ---- ------- ------- ------- NET EARNINGS (LOSS) PER SHARE....................... $ (4.75) $ 11.44 $ 7.76 ------- ------- ------- Weighted average shares outstanding................. 360,585 494,968 496,166 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-4 HCC INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
TOTAL COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS' ------------- PAID-IN NOTE EARNINGS EQUITY SHARES AMOUNT CAPITAL RECEIVABLE (DEFICIT) (DEFICIT) ------ ------ ---------- ---------- --------- ------------- Balance, April 2, 1994.. 514 $51 $ 1,918 $-- $ 3,738 $ 5,707 Repurchase of stock... (24) (2) (360) -- -- (362) Net earnings.......... -- -- -- -- 3,852 3,852 ---- --- ------- ---- -------- -------- Balance, April 1, 1995.. 490 49 1,558 -- 7,590 9,197 Sale of stock......... 10 1 199 (175) -- 25 Net earnings.......... -- -- -- -- 5,663 5,663 ---- --- ------- ---- -------- -------- Balance, March 30, 1996. 500 50 1,757 (175) 13,253 14,885 Payment of note receivable............ -- -- -- 175 -- 175 Repurchases of stock.. (452) (46) (37,438) -- (64,893) (102,377) Sale of stock in recapitalization...... 96 10 35,681 -- -- 35,691 Net loss.............. -- -- -- -- (1,714) (1,714) ---- --- ------- ---- -------- -------- Balance, March 29, 1997. 144 $14 $ -- $-- $(53,354) $(53,340) ==== === ======= ==== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 HCC INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEAR ENDED ----------------------------- MARCH 29, MARCH 30, APRIL 1, 1997 1996 1995 --------- --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss)............................. $ (1,714) $ 5,663 $ 3,852 Reconciliation of net earnings to net cash provided by operating activities: Non-recurring expense......................... 10,000 -- -- Depreciation.................................. 1,195 934 809 Amortization.................................. 604 435 392 Deferred income taxes......................... (4,223) 181 27 Extraordinary loss............................ 1,186 -- -- Loss on sale of building...................... -- -- 1,369 Changes in operating assets and liabilities: (Increase) decrease in trade accounts receivable, net.............................. 851 (2,057) (1,256) (Increase) in inventories..................... (323) (798) (993) (Increase) decrease in other assets........... (6,161) 23 34 Increase (decrease) in accrued liabilities.... 260 (259) 657 Increase in accounts payable and income taxes payable...................................... 135 940 805 -------- ------- ------- Net cash provided by operating activities... 1,810 5,062 5,696 -------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment...... (1,943) (615) (994) Proceeds from sale of building.................. -- -- 1,050 Cash collected on note receivable............... 175 -- 80 -------- ------- ------- Net cash provided by (used) in investing ac- tivities................................... (1,768) (615) 136 -------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt............ (22,489) (1,449) (3,658) Proceeds from issuance of long-term debt........ 90,309 -- 1,500 Deferred financing costs........................ (1,945) -- -- Repurchases of stock............................ (30,148) -- -- Restricted cash due to selling stockholders..... (69,282) -- -- Sale of stock................................... 35,691 25 (362) Cost of recapitalization........................ (1,984) -- -- -------- ------- ------- Net cash provided by (used) in financing activities................................. 152 (1,424) (2,520) -------- ------- ------- Net increase in cash and cash equivalents....... 194 3,023 3,312 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......................................... 6,647 3,624 312 -------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $ 6,841 $ 6,647 $ 3,624 ======== ======= ======= SUPPLEMENTAL NONCASH FINANCING ACTIVITIES: Due to selling stockholders................... $ 70,245 $ -- $ -- Capital lease obligations..................... 1,426 1,417 161 Note received from sale of stock.............. -- 175 --
The accompanying notes are an integral part of these consolidated financial statements. F-6 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: General HCC Merger Corp. was organized in 1989 to acquire HCC Industries Inc. and Subsidiaries ("HCC" or "Company"). HCC designs, manufactures and markets broad lines of state-of-the-art, high precision electronic connection devices known as hermetic seals. The Company's products are sold primarily in North America and Europe to the aerospace, energy, test and measurement and automotive industries. On August 28, 1996 Merger Corp. merged into the Company (the "Merger"). As a result of the Merger, the accompanying balance sheet has been retroactively restated to reflect the capital structure of HCC. On October 18, 1995, HCC Merger Corp. ("Merger Corp."), the predecessor to the Company, entered into an agreement (as amended, the "Option Agreement") with a stockholder of Merger Corp. (who is also a stockholder of Special Devices, Inc., the Company's largest customer) in anticipation of a prior proposed acquisition of the Company by a third party. In the Option Agreement, Merger Corp. was granted an option on such stockholder's shares in Merger Corp. Such proposed transaction was not consummated. In June 1996, Merger Corp. exercised its option and such stockholder received $13,500,000 in consideration for his shares. Pursuant to the Option Agreement, such stockholder (i) also received certain additional amounts ($963,000) in connection with the consummation of the Recapitalization described below and (ii) agreed that he would have no interest in any future amounts actually paid to the other stockholders of the Company in connection with any subsequent transaction, including the Recapitalization. On February 14, 1997, pursuant to a Stock Purchase and Sale Agreement (the "Recapitalization Agreement") dated as of December 23, 1996, the Company, certain members of management, Windward Capital Associates, L.P. ("Windward") and certain affiliates of Windward (collectively, with Windward, the "Windward Group") and Metropolitan Life Insurance Company ("MetLife") completed a recapitalization of the Company (the "Recapitalization"). The Windward Group is a group of related entities which make merchant banking investments pursuant to certain program agreements. In connection with the Recapitalization, among other things: (i) the Company entered into Credit Facilities, consisting of: (a) a $10,000,000 five year Revolving Credit Facility, (b) a $30,000,000 five year Tranche A Term Loan and (c) a $30,000,000 six and one-half year Tranche B Term Loan; (ii) the Company issued $19,300,000, net of discount, in subordinated notes to the Windward Group and MetLife along with 8,614 shares of Common Stock and certain contingent antidilution warrants for an aggregate purchase price of $22,500,000; (iii) the Company purchased a portion of the shares of Common Stock beneficially owned by existing stockholders for $93,500,000 in cash and $5,000,000 in contingent subordinated notes; (iv) the Windward Group purchased 87,721 shares of Common Stock from the Company for $32,500,000 in cash; and (v) the Company repaid certain of its outstanding indebtedness. At March 29, 1997, as a result of item (iii) above, $69,282,000 remained in an escrow account and is reflected on the balance sheet of the Company as restricted cash and due to stockholders. This escrow was disbursed in April 1997. In accounting for the Recapitalization, no fair value adjustments were made to the book value of the Company's assets and no goodwill was recognized. In addition, in connection with the Recapitalization, a $6,000,000 escrow was established by the selling stockholders to fund certain contingencies and/or items specifically indemnified by the selling stockholders. The escrow account has been classified as restricted cash on the consolidated balance sheet. Any funds remaining in this account upon satisfaction of conditions specified in the escrow agreement, will be paid to the selling stockholders. F-7 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED: Principles Of Consolidation The consolidated financial statements include the accounts of the Company and all wholly owned subsidiaries. All significant intercompany transactions (which are primarily sales/purchases and receivables/payables) have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, reported results of operations and disclosure of contingencies at the dates of the consolidated financial statements. Actual results could differ from those estimates. Accounting Period The consolidated financial statements are based on the fiscal year ending on the Saturday nearest to March 31. Revenue Recognition The Company generally recognizes revenue at the time of shipment. Cash Equivalents The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The Company has bank balances, including cash and cash equivalents, which at times may exceed federally insured limits. Accounts Receivable And Concentration Of Credit Risk The Company grants uncollateralized credit to its customers who are located in various geographical areas. Estimated credit losses and returns have been provided for in the financial statements and, to date, have been within management's expectations. Sales to the Company's four largest customers accounted for 43% (1997), 45% (1996) and 44% (1995) of total sales. At March 29, 1997 and March 30, 1996, the four largest customers accounted for approximately 30% and 43% of total accounts receivable, respectively. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Property, Plant and Equipment Property, plant and equipment is recorded at cost. Depreciation is computed generally by the straight-line method over the estimated useful lives of the respective assets of 3 years to 40 years. Repairs and maintenance are charged directly to expense as incurred. Additions and betterments to property, plant and equipment are capitalized. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in operations. Excess of Purchase Price over Net Assets Acquired The excess of purchase price over net assets acquired is amortized on a straight-line basis over 40 years. Amortization expense was $189,000 for each of the three years in the period ended March 29, 1997. Accumulated amortization on the excess purchase price over net assets acquired was $1,694,000 and $1,505,000 as of March 29, 1997 and March 30, 1996, respectively. F-8 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED: Long-Lived Assets In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," was issued. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 121 was effective for fiscal years beginning after December 15, 1995. The impact of the adoption of SFAS No. 121 was not material to the Company's consolidated financial statements. Income Taxes The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Stock Based Employee Compensation Awards Statement of Financial Accounting Standards No. 123, "Accounting for the Awards of Stock-Based Compensation to Employees" ("SFAS No. 123") encourages, but does not require companies to record compensation cost for stock-based compensation plans at fair value. The Company has adopted the disclosure requirements of SFAS No. 123, which involves proforma disclosure of net income under SFAS No. 123, detailed descriptions of plan terms and assumptions used in valuing stock option grants. The Company has chosen to continue to account for stock-based employee compensation awards in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Earnings (Loss) Per Share Earnings (loss) per share is computed based on the weighted average number of common and common equivalents shares outstanding during the periods presented, using the treasury stock method. Common stock equivalents related to stock options are excluded from the computation when their effect is antidilutive. In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 requires dual presentation of newly defined basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures. This method is considered more compatible with International Accounting Standards. SFAS No. 128 is effective for all fiscal years ending after December 15, 1997. The Company is currently evaluating the impact of SFAS No. 128. Reclassifications Certain reclassifications have been made to previously reported amounts to conform with the current year presentation. F-9 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. INVENTORIES: Inventories consist of the following (in thousands):
MARCH MARCH 29, 30, 1997 1996 -------- ------- Raw materials and component parts......................... $ 1,910 $ 1,948 Work in process........................................... 2,466 2,105 -------- ------- $ 4,376 $ 4,053 ======== ======= 3. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consist of the following (in thousands): MARCH MARCH 29, 30, 1997 1996 -------- ------- Land...................................................... $ 3,180 $ 3,180 Buildings and improvements................................ 5,450 5,018 Furniture, fixtures and equipment......................... 9,350 6,413 -------- ------- 17,980 14,611 Less accumulated depreciation............................. (5,716) (4,521) -------- ------- $ 12,264 $10,090 ======== =======
F-10 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. LONG-TERM DEBT: Long-term debt consists of the following (in thousands):
MARCH 29, MARCH 30, 1997 1996 --------- --------- Tranche A Term Loan--bearing interest at the bank's prime rate plus 1 1/4% payable monthly in arrears; principal payments of $500,000 payable quarterly through June 1998; $1,000,000 payable quarterly through March 1999; $2,000,000 payable quarterly thereafter with balance due February 14, 2002......... $30,000 $ -- Tranche B Term Loan--bearing interest at the bank's prime rate plus 1 3/4% payable monthly in arrears; principal payments of $75,000 payable quarterly through March 2002; $3,500,000 payable quarterly through March 2003; $7,500,000 payable June 2003 and balance due August 14, 2003........................... 30,000 -- 12% subordinated notes--interest payable semi-- annually; face value of $22,500,000 due April 15, 2004, recorded at present value discounted to an effective interest rate of 15.38%..................... 19,352 -- 12 1/2% convertible subordinated debentures--interest payable semi-annually; sinking fund payments of $750,000 annually with remaining balance due November 15, 2000.............................................. -- 5,497 7 1/4% subordinated debentures--interest payable semi- annually; face value of $5,320,000 due April 15, 2001, recorded at present value discounted to an effective interest rate of 19.12%............................... -- 3,293 Term loan on land, building and improvements payable in monthly installments of $9,000 plus interest at the bank's prime rate plus 1 1/2% with balance due August 1997.................................................. 596 706 Other.................................................. 2,505 1,641 ------- ------ 82,453 11,137 Less current portion................................... 3,537 1,326 ------- ------ $78,916 $9,811 ======= ======
At March 29, 1997 and March 30, 1996, the prime rate was 8.50% and 8.25%, respectively. The 12 1/2% and 7 1/4% debentures were redeemed on February 14, 1997. As a result, the Company recognized an extraordinary loss ($1,186,000 net of tax benefit) on unamortized discount and issuance costs. In issuing the Tranche A Term Loan, the Tranche B Term Loan and the 12% subordinated notes, the Company incurred $1,945,000 in deferred financing costs. These costs will be amortized using the straight-line method which approximates the effective interest method over the term of the respective debt. For the year ended March 29, 1997, the Company incurred amortization expense of $118,000 on the deferred financing costs. See Note 11 for a description of a subsequent transaction to refinance this debt. In accordance with SFAS No. 107 "Disclosure About Fair Value of Financial Instruments," the fair values of the Company's long-term debt has been established based on current rates offered to the Company for debt of the same remaining maturities. The carrying amounts of the Company's loans approximate their fair values. F-11 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. LONG-TERM DEBT--CONTINUED: Minimum payments due under long-term debt as of March 29, 1997 are as follows (in thousands):
FISCAL ------ 1998................................. $ 3,537 1999................................. 4,918 2000................................. 8,868 2001................................. 8,764 2002................................. 8,514 2003 and thereafter.................. 47,852 ------- $82,453 =======
Cash payments for interest were $2,241,000 (1997), $1,379,000 (1996) and $1,419,000 (1995). 5. LINES OF CREDIT: The Company has a revolving credit facility agreement (the "Agreement") of $10,000,000 expiring on February 14, 2002. The Agreement provides for interest on outstanding balances at the bank's prime rate plus 1 1/4%. Under the Agreement, any amounts outstanding under the line of credit are collateralized by accounts receivable and inventories of the Company. The Agreement includes covenants requiring maintenance of certain financial ratios. At March 29, 1997 there were no borrowings outstanding under the Agreement. The Company has a capital lease line of credit of $3,417,000 for financing manufacturing equipment expiring March 31, 1997. The agreement provides for thirty-six (36) or sixty (60) month terms with interest at 2.00% above the bank's index rate. The bank's index rate is the U.S. Treasury Note bond- equivalent yield per annum corresponding to the average life of the lease. At March 29, 1997 and March 30, 1996 there were $2,335,000 and $1,417,000 in borrowings outstanding under the capital lease line, respectively. 6. TAXES ON EARNINGS: The components of income tax (benefit) expense consist of the following (in thousands):
1997 1996 1995 ------ ------ ------ Current: Federal.............................................. $2,484 $2,403 $1,426 State................................................ 488 646 357 ------ ------ ------ 2,972 3,049 1,783 ------ ------ ------ Deferred: Federal.............................................. (3,334) 147 25 State................................................ (588) 34 2 ------ ------ ------ (3,922) 181 27 ------ ------ ------ $ (950) $3,230 $1,810 ====== ====== ======
F-12 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. TAXES ON EARNINGS--CONTINUED: The Company's effective tax rate differs from the statutory federal income tax rate as follows:
1997 1996 1995 ------ ----- ----- Tax provision at the statutory rate.................... (34.0%) 34.0% 34.0% Nondeductible expenses................................. 2.7% 0.8% 3.6% State taxes, net of federal benefit.................... (1.9%) 5.0% 1.8% Other.................................................. (2.5%) (3.5%) (7.4%) ------ ----- ----- (35.7%) 36.3% 32.0% ====== ===== =====
The components of the net deferred taxes are as follows (in thousands):
MARCH 29, MARCH 30, 1997 1996 --------- --------- Deferred Tax Assets: Environmental liabilities................................ $4,000 $ -- Accrued vacation and other............................... 215 214 ------ ----- 4,215 214 Deferred Tax Liabilities: Depreciation............................................. (730) (635) ------ ----- Deferred Tax Asset (Liability), net...................... $3,485 $(421) ====== =====
Cash tax payments were $4,454,000 (1997), $2,079,000 (1996) and $1,673,000 (1995). 7. CAPITAL STOCK: The Company is authorized to issue an aggregrate of 550,000 shares of common stock. These shares may be issued in four different classes (A, B, C or D shares) which differ only in voting rights per share. At March 29, 1997, the 143,569 outstanding shares of common stock (rounded to the nearest whole share) were designated as follows:
SHARES AMOUNT VOTING RIGHTS CLASS OUTSTANDING (IN THOUSANDS) PER SHARE ----- ----------- -------------- ------------- A 110,484 $11 1 B 28,289 3 1 C 4,316 -- None D 480 -- 10 ------- --- 143,569 $14 ======= ===
The remaining 406,431 shares are undesignated as to class. In February 1997, the Company adopted a stock option plan (the "Option Plan") which provides for the grant to employees, from time to time, of non- qualified stock options to purchase up to an aggregate of 22,887 shares of common stock at exercise prices to be determined by the Board of Directors. The Option Plan provides for the grant of management options to purchase 6,393 shares of common stock (the "Management Options"), management performance options to purchase 14,206 shares of common stock (the "Management Performance Options"), director options to purchase 710 shares of common stock (the "Director Options") and director performance options to purchase 1,578 shares of common stock (the F-13 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. CAPITAL STOCK--CONTINUED: "Director Performance Options"). The Management Options and Director Options are subject to a vesting schedule that generally provides for each series of options to vest 20% per year over five years if the Company attains specified annual or cumulative earnings targets as defined in the Option Plan. The Management Performance Options and Director Performance Options are subject to a vesting schedule based on a change in control in which the Windward Group realizes specified annual rates of return on its equity investment in the Company as defined in the Option Plan. All options are exercisable over a period of 10 years and will automatically vest on the seventh anniversary of the date of grant, regardless of whether the performance criteria are achieved. During the year ended March 29, 1997, the Company granted options to purchase 18,160 shares of common stock with an exercise price equal to the fair value of common stock as determined by the Board of Directors at the date of grant ($370.49 per share). No options were exercisable at March 29, 1997 and options to purchase 4,727 shares of common stock remained available for grant. The Company has adopted the disclosure only provisions of SFAS No. 123. For the year ended March 29, 1997, due to the limited time period for which stock options were outstanding, there was no significant difference between the Company's net loss or net loss per share and pro forma amounts calculated in accordance with Statements of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation". The fair value of each option granted was estimated on the date of grant to be $99 using the minimum value method with the following assumptions (i) risk- free interest rate of 6.25%, (ii) expected option life of 5 years, (iii) forfeiture rate of 0 and (iv) no expected dividends. 8. EMPLOYEE BENEFIT PLAN: In 1993, the Company adopted the HCC Savings and Investment Plan (the "Plan") which covers all eligible full-time employees. The Company established the Plan to meet the requirements of a qualified retirement plan pursuant to the provisions of Section 401(k) of the Internal Revenue Code. The Plan provides participants the opportunity to make tax deferred contributions to a retirement trust account in amounts up to 15% of their gross wages. The Company has elected to make matching contributions in amounts that may change from year to year. The Company contributed $480,000 (1997), $323,000 (1996) and $318,000 (1995) in matching contributions to the Plan. 9. COMMITMENTS AND CONTINGENCIES: Environmental As an ongoing facet of the Company's business, it is required to maintain compliance with various environmental regulations. The cost of this compliance is included in the Company's operating results as incurred. These ongoing costs include permitting fees and expenses and specialized effluent control systems as well as monitoring and site assessment costs required by various governmental agencies. In the opinion of management, the maintenance of this compliance will not have a significant effect on the financial position or results of operations of the Company. In August 1994, the U.S. Environmental Protection Agency ("EPA") identified the Company as a potentially responsible party ("PRP") in the El Monte Operable Unit ("EMOU") of the San Gabriel Valley Superfund Sites. In early 1995, the Company and the EPA executed an Administrative Consent Order F-14 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. COMMITMENTS AND CONTINGENCIES--CONTINUED: which requires the Company and other PRP's to perform a Remedial Investigation and Feasibility Study ("RI/FS") for the EMOU. In addition, the Company's facility in Avon, Massachusetts is subject to Massachusetts "Chapter 21E", the State's hazardous site clean-up program. Uncertainty as to (a) the extent to which the Company caused, if at all, the conditions being investigated, (b) the extent of environmental contamination and risks, (c) the applicability of changing and complex environmental laws, (d) the number and financial viability of other PRP's, (e) the stage of the investigation and/or remediation, (f) the unpredictability of investigation and/or remediation costs (including as to when they will be incurred), (g) applicable clean-up standards, (h) the remediation (if any) that will ultimately be required, and (i) available technology make it difficult to assess the likelihood and scope of further investigation or remediation activities or to estimate the future costs of such activities if undertaken. In fiscal 1997, the Company with the help of independent consultants, determined a range of estimated costs of $9,000,000 to $11,000,000 associated with the various claims and assertions it faces. Management believes that no amount in the foregoing range of estimated future costs is more probable of being incurred than any other amount in that range. The time frame over which the Company expects to incur such costs varies with each site, ranging up to 20 years as of March 29, 1997. These estimates are based partly on progress made in determining the magnitude of such costs, experience gained from sites on which remediation is ongoing or has been completed, and the timing and extent of remedial actions required by the applicable governmental authorities. As a result, the Company has accrued $10,000,000 for estimated environmental remediation and other related costs as of March 29, 1997. Claims for recovery of costs already incurred and future costs have been asserted against various insurance companies. The Company has neither recorded any asset nor reduced any liability in anticipation of recovery with respect to such claims made. The Company believes its reserves are adequate, but as the scope of its obligations becomes more clearly defined, this reserve may be modified and related charges against earnings may be made. Leases The Company leases certain facilities under non-cancelable operating lease agreements expiring through 2002. The leases are subject to increases from time to time primarily based on CPI adjustments. The lease terms vary from 4 to 7 years and include options to extend the leases for additional terms. At March 29, 1997, the minimum lease payments due over the remaining life of the facility leases consisted of (in thousands):
YEAR ENDED MARCH AMOUNT ---------------- ------ 1998........................................................... $159 1999........................................................... 159 2000........................................................... 163 2001........................................................... 136 2002........................................................... 34
Rent expense under operating leases was $165,000 (1997), $77,000 (1996) and $12,000 (1995). F-15 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. COMMITMENTS AND CONTINGENCIES--CONTINUED: Other In addition to the above, the Company is involved in other claims and litigation arising in the normal course of business. Based on the advice of counsel and in the opinion of management, the ultimate resolution of these matters will not have a significant effect on the financial position or the results of operations of the Company. 10. RELATED PARTY TRANSACTIONS: Prior to August 1996, a stockholder of the Company was also a stockholder of Special Devices, Inc. ("SDI"). Sales to SDI were $15,243,000, $12,212,000 and $11,873,000 for the years ended March 29, 1997, March 30, 1996 and April 1, 1995, respectively. Accounts receivable from SDI as of March 29, 1997 and March 30, 1996 was $1,392,000 and $1,668,000, respectively. In fiscal 1997, the stockholder sold his outstanding shares back to the Company. 11. SUBSEQUENT EVENTS (UNAUDITED): In May 1997, the Company issued $90,000,000 of senior subordinated notes due in May 2007. Interest is payable semi-annually at 10.75% per annum. Proceeds from the offering were used to (i) retire the Tranche A Term Loan, the Tranche B Term Loan and the 12% subordinated notes and accompanying equity, and (ii) provide approximately $3,800,000 (net of offering expenses) for additional working capital needs of the Company. As a result of this refinancing, the Company will record an extraordinary loss of approximately $1,100,000, net of taxes, in the first quarter of fiscal 1998. Concurrent with the offering, the Company's bank increased the revolving credit facility to an aggregate of $20,000,000. On June 20, 1997, the Company acquired substantially all of the assets and assumed certain liabilities of a glass-to-metal sealing company. The purchase price included $2,100,000 in cash and a contingent payment of $400,000 based upon the volume of business retained in the immediately subsequent 18 month period. In its last fiscal year of operations, the acquired company generated sales of approximately $3,200,000. F-16 - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY GUARANTOR OR ANY INITIAL PUR- CHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN- DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. ------------ TABLE OF CONTENTS
PAGE ---- Available Information................................................. 2 Disclosure Regarding Forward Looking Statements....................... 2 Prospectus Summary.................................................... 3 Risk Factors.......................................................... 14 The Recapitalization.................................................. 21 Recent Developments................................................... 22 Use of Proceeds....................................................... 23 Capitalization........................................................ 24 Unaudited Pro Forma Consolidated Financial Information................ 25 Selected Consolidated Historical Financial Information................ 29 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................ 31 The Exchange Offer.................................................... 37 Business.............................................................. 44 Management............................................................ 55 Securities Ownership of Certain Beneficial Owners and Management...... 61 Certain Relationships and Related Transactions........................ 63 Description of Certain Indebtedness................................... 65 Description of the Notes.............................................. 67 Certain U.S. Federal Income Tax Considerations........................ 102 Plan of Distribution.................................................. 102 Legal Matters......................................................... 103 Experts............................................................... 103 Index to Financial Statements......................................... F-1
Until 1997 (90 days after the date of this Prospectus), all dealers effecting transactions in the New Notes, whether or not participating in the Exchange Offer, may be required to deliver a Prospectus. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- [LOGO OF HCC INDUSTRIES] $90,000,000 10 3/4% Senior Subordinated Exchange Notes Due 2007 ---------------- PROSPECTUS ---------------- , 1997 - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the General Corporation Law of the State of Delaware (the "Delaware Corporation Law") empowers a Delaware corporation to indemnify any persons who are, or are threatened to be made, parties to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include 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, provided that such officer or director acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests, and, for criminal proceedings, had no reasonable cause to believe his conduct was unlawful. A Delaware corporation may indemnify officers and directors against expenses (including attorneys' fees) in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director actually and reasonably incurred. Article V of the By-laws of the Registrant, a copy of which is filed as Exhibit 3.2 to this Registration Statement, allows the Registrant to maintain director and officer liability insurance on behalf of any person who is or was a director or officer of the Registrant or such person who serves or served as director, officer, employee or agent, of another corporation, partnership or other enterprise at the request of the Registrant. Article V of the Registrant's By-laws provides for indemnification of the officers and directors of the Registrant to the fullest extend permitted by applicable law. Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article Sixth of the Certificate of Incorporation of the Registrant, a copy of which is filed as Exhibit 3.1 to this Registration Statement, provides that no director of the Registrant shall be personally liable to the Registrant or its shareholders for monetary damages for any breach of his fiduciary duty as a director; provided, however, that such clause shall not apply to any liability of a director (1) for any breach of the Director's duty of loyalty to the Registrant or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (3) pursuant to Section 174 of the Delaware Corporation Law, or (4) for any transaction from which the director derived an improper personal benefit. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits: EXHIBIT NO. - ------ DESCRIPTION 2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION. 2.1 First Amendment and Restatement of the Stock Purchase and Sale Agreement,dated as of December 23, 1996, by and among the Company, the Windward Group,MetLife and the Sellers named therein. 2.2 Subordinated Note Agreement, dated as of February 14, 1997, by and among theCompany, Windward/Merchant L.P., Windward/Merban L.P. and MetLife. 2.3 Escrow Agreement, dated as of February 14, 1997, by and among the Company,Windward Capital Associates L.P., the Sellers named therein and U.S. Trust Companyof California, N.A., as escrow agent. II-1 EXHIBIT DESCRIPTION NO. 3. CERTIFICATE OF INCORPORATION AND BY-LAWS. 3.1 Amended and Restated Certificate of Incorporation of the Company. 3.2 Amended and Restated By-Laws of the Company. *3.3 Certificate of Incorporation of Hermetic Seal Corporation. *3.4 By-Laws of Hermetic Seal Corporation. *3.5 Certificate of Incorporation of Glasseal Products, Inc. *3.6 By-Laws of Glasseal Products, Inc. *3.7 Certificate of Incorporation of Sealtron, Inc. *3.8 By-Laws of Sealtron, Inc. *3.9 Certificate of Incorporation of Sealtron Acquisition Corp. *3.10 By-Laws of Sealtron Acquisition Corp. *3.11 Articles of Incorporation of HCC Industries International. *3.12 By-Laws of HCC Industries International. 4. INSTRUMENTS DEFINING THE RIGHT OF SECURITY HOLDERS, INCLUDING INDENTURES. 4.1 Indenture, dated as of May 6, 1997, among the Company, the Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as Trustee, relating to the 10 3/4% Senior Subordinated Notes due 2007 and the 10 3/4% Senior Subordinated Exchange Notes due 2007. 4.2 Form of 10 3/4% Senior Subordinated Exchange Notes due 2007 (included in Exhibit 4.1). 4.3 Registration Rights Agreement, dated May 6, 1997, among the Company, the Subsidiary Guarantors, and Credit Suisse First Boston Corporation and Furman Selz LLC, as Initial Purchasers. 5.OPINIONS. *5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company. 9.VOTING TRUST AGREEMENT. 9.1 Stockholders Agreement, dated as of February 14, 1997, by and among the Company,the Windward Group and the Stockholders named therein. 10.MATERIAL CONTRACTS. 10.1 Credit Agreement, dated as of February 14, 1997, by and among the Company,Fleet Capital Corporation, as Agent, and the Lender Parties thereto. 10.2 Amendment No. 1 to the Credit Agreement, dated as of May 6, 1997, by and amongthe Company, Fleet Capital Corporation, as Agent, and the Lender Parties thereto. 10.3 HCC Industries, Inc. Stock Option Plan, dated February 14, 1997. 10.4 Form of Stock Option Agreement (included in Exhibit 10.3). 10.5 Contingent Bonus Plan of HCC Industries Inc., dated as of February 14, 1997. 10.6 Form of Contingent Bonus Plan Award Agreement (included in Exhibit 10.5). 10.7 Employment Agreement, dated as of February 14, 1997, by and between the Company and Andrew Goldfarb. II-2 EXHIBIT DESCRIPTION NO. 10.8 Employment Agreement, dated as of February 14, 1997, by and between the Company and Christopher Bateman. 10.9 Employment Agreement, dated as of February 14, 1997, by and between the Companyand Richard Ferraid. 10.10 Financial Advisory Services Agreement, dated as of February 14, 1997, by and betweenWindward Capital Partners, L.P. and the Company. 10.11 Letter Agreement, dated February 14, 1997, from the Company to Windward CapitalPartners L.P., relating to fees. 10.12 Purchase Agreement, dated May 1, 1997, by and among the Company, the SubsidiaryGuarantors and Credit Suisse First Boston Corporation and Furman Selz LLC, asInitial Purchasers. 12.RATIO OF EARNINGS TO FIXED CHARGES. 12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Company. 21.SUBSIDIARIES. 21.1 Subsidiaries of the Company. 23.CONSENTS. 23.1 Consent of Coopers & Lybrand L.L.P. *23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company (included in Exhibit 5.1). 24.POWERS OF ATTORNEY. 24.1 Power of Attorney (included in signature page). 25.FORM T-1. 25.1 Statement of Eligibility and Qualification on Form T-1 of IBJ Schroder Bank & Trust Company, as Trustee under the Indenture relating to the Company's 10 3/4% Senior Subordinated Exchange Notes due 2007. 27.FINANCIAL DATA SCHEDULE. 27.1 Financial Data Schedule. 99.MISCELLANEOUS. *99.1 Form of Letter of Transmittal. *99.2 Form of Notice of Guaranteed Delivery. *99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. *99.4 Form of Letter to Clients. - -------- * To be filed by amendment. (b) Financial Statement Schedules: Schedule II--Valuation and Qualifying Accounts and Reserves. II-3 ITEM 22. UNDERTAKINGS (a) The undersigned Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (d) The undersigned registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on the 28th day of July, 1997. HCC INDUSTRIES INC. /s/ Andrew Goldfarb By: _____________________________ Andrew Goldfarb Chairman, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Andrew Goldfarb and Christopher H. Bateman his true and lawful attorney-in-fact, each with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities (including his capacity as a director and/or officer of HCC Industries Inc.) to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any registration statement relating to the same offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Andrew Goldfarb Chairman, President and Chief July 28, 1997 - ------------------------------- Andrew Goldfarb Executive Officer (Principal Executive Officer) /s/ Christopher H. Bateman Director, Vice President and July 28, 1997 - ------------------------------- Christopher H. Bateman Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer) /s/ Richard Ferraid Director July 28, 1997 - ------------------------------- Richard Ferraid /s/ Robert H. Barton, III Director July 28, 1997 - ------------------------------- Robert H. Barton, III
II-5
SIGNATURE TITLE DATE --------- ----- ---- /s/ Gary L. Swenson Director July 28, 1997 - ------------------------------------ Gary L. Swenson /s/ Noel E. Urban Director July 28, 1997 - ------------------------------------ Noel E. Urban /s/ Thomas J. Sikorski Director July 28, 1997 - ------------------------------------ Thomas J. Sikorski /s/ John M. Leonis Director July 28, 1997 - ------------------------------------ John M. Leonis
II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on the 28th day of July, 1997. HERMETIC SEAL CORPORATION By: /s/ Andrew Goldfarb ---------------------------------- Andrew Goldfarb President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher H. Bateman his true and lawful attorney-in-fact, each with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities (including his capacity as a director and/or officer of Hermetic Seal Corporation) to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any registration statement relating to the same offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in- fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Andrew Goldfarb Director, President and Chief July 28, 1997 - ------------------------------------ Executive Officer Andrew Goldfarb (Principal Executive Officer) /s/ Christopher H. Bateman Director, Vice President, July 28, 1997 - ------------------------------------ Treasurer and Secretary Christopher H. Bateman (Principal Financial Officer and Principal Accounting Officer)
II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on the 28th day of July, 1997. GLASSEAL PRODUCTS, INC. By: /s/ Andrew Goldfarb ------------------------------- Andrew Goldfarb Chairman and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher H. Bateman his true and lawful attorney-in-fact, each with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities (including his capacity as a director and/or officer of Glasseal Products,) to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any registration statement relating to the same offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Andrew Goldfarb Chairman and Chief Executive Officer July 28, 1997 - --------------------------- Andrew Goldfarb (Principal Executive Officer) /s/ Christopher H. Bateman Director, Treasurer and Secretary July 28, 1997 - ---------------------------- Christopher H. Bateman (Principal Financial Officer and Principal Accounting Officer)
II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on the 28th day of July, 1997. SEALTRON, INC By: /s/ Andrew Goldfarb ------------------------------- Andrew Goldfarb Chairman, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher H. Bateman his true and lawful attorney-in-fact, each with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities (including his capacity as a director and/or officer of Sealtron, Inc.) to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any registration statement relating to the same offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Andrew Goldfarb Chairman, President and July 28, 1997 - ------------------------------------ Andrew Goldfarb Chief Executive Officer (Principal Executive Officer) /s/ Christopher H. Bateman Director, Vice President and July 28, 1997 - ------------------------------------ Christopher H. Bateman Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
II-9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on the 28th day of July, 1997. SEALTRON ACQUISITION CORP. By: /s/ Andrew Goldfarb ------------------------------ Andrew Goldfarb Chairman, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher H. Bateman his true and lawful attorney-in-fact, each with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities (including his capacity as a director and/or officer of Sealtron Acquisition Corp.) to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any registration statement relating to the same offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in- fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Andrew Goldfarb Chairman, President and Chief July 28, 1997 - ------------------------------------ Andrew Goldfarb Executive Officer (Principal Executive Officer) /s/ Christopher H. Bateman Director, Vice President, July 28, 1997 - ------------------------------------ Christopher H. Bateman Chief Financial Officer and Secretary (Principal Financial Officer Principal Accounting Officer)
II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on the 28th day of July, 1997. HCC INDUSTRIES INTERNATIONAL By: /s/ Andrew Goldfarb ------------------------------ Andrew Goldfarb Chairman, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher H. Bateman his true and lawful attorney-in-fact, each with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities (including his capacity as a director and/or officer of HCC Industries International) to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any registration statement relating to the same offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in- fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Andrew Goldfarb Chairman, President and Chief July 28, 1997 - ---------------------------------- Andrew Goldfarb Executive Officer (Principal Executive Officer) /s/ Christopher H. Bateman Director, Vice President, July 28, 1997 - ---------------------------------- Christopher H. Bateman Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer)
II-11 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
ADDITIONS --------------------- BALANCE CHARGED DEDUCTIONS-- AT TO COSTS UNCOLLECTIBLE BALANCE BEGINNING AND FROM ACCOUNTS AT END OF YEAR EXPENSES ACQUISITIONS WRITES OFF OF YEAR --------- -------- ------------ ------------- ------- 1997 Allowance for doubtful accounts............... $40.0 $ 4.2 $-- $ 4.2 $40.0 ===== ===== ==== ===== ===== 1996 Allowance for doubtful accounts............... $65.0 $36.0 $-- $61.0 $40.0 ===== ===== ==== ===== ===== 1995 Allowance for doubtful accounts............... $70.0 $ -- $-- $ 5.0 $65.0 ===== ===== ==== ===== =====
S-1 EXHIBIT INDEX EXHIBIT DESCRIPTION PAGE NO. NO. 2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION. 2.1 First Amendment and Restatement of the Stock Purchase and Sale Agreement,dated as of December 23, 1996, by and among the Company, the Windward Group,MetLife and the Sellers named therein. 2.2 Subordinated Note Agreement, dated as of February 14, 1997, by and among theCompany, Windward/Merchant L.P., Windward/Merban L.P. and MetLife. 2.3 Escrow Agreement, dated as of February 14, 1997, by and among the Company,Windward Capital Associates L.P., the Sellers named therein and U.S. Trust Companyof California, N.A., as escrow agent. 3. CERTIFICATE OF INCORPORATION AND BY-LAWS. 3.1 Amended and Restated Certificate of Incorporation of the Company. 3.2 Amended and Restated By-Laws of the Company. *3.3 Certificate of Incorporation of Hermetic Seal Corporation. *3.4 By-Laws of Hermetic Seal Corporation. *3.5 Certificate of Incorporation of Glasseal Products, Inc. *3.6 By-Laws of Glasseal Products, Inc. *3.7 Certificate of Incorporation of Sealtron, Inc. *3.8 By-Laws of Sealtron, Inc. *3.9 Certificate of Incorporation of Sealtron Acquisition Corp. *3.10 By-Laws of Sealtron Acquisition Corp. *3.11 Articles of Incorporation of HCC Industries International. *3.12 By-Laws of HCC Industries International. 4. INSTRUMENTS DEFINING THE RIGHT OF SECURITY HOLDERS, INCLUDING INDENTURES. 4.1 Indenture, dated as of May 6, 1997, among the Company, the Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as Trustee, relating to the 10 3/4% Senior Subordinated Notes due 2007 and the 10 3/4% Senior Subordinated Exchange Notes due 2007. 4.2 Form of 10 3/4% Senior Subordinated Exchange Notes due 2007 (included in Exhibit 4.1). 4.3 Registration Rights Agreement, dated May 6, 1997, among the Company, the Subsidiary Guarantors, and Credit Suisse First Boston Corporation and Furman Selz LLC, as Initial Purchasers. 5. OPINIONS. *5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company. 9. VOTING TRUST AGREEMENT. 9.1 Stockholders Agreement, dated as of February 14, 1997, by and among the Company,the Windward Group and the Stockholders named therein. 10. MATERIAL CONTRACTS. 10.1 Credit Agreement, dated as of February 14, 1997, by and among the Company,Fleet Capital Corporation, as Agent, and the Lender Parties thereto. 10.2 Amendment No. 1 to the Credit Agreement, dated as of May 6, 1997, by and amongthe Company, Fleet Capital Corporation, as Agent, and the Lender Parties thereto. EXHIBIT DESCRIPTION PAGE NO. NO. 10.3 HCC Industries Inc. Stock Option Plan, dated February 14, 1997. 10.4 Form of Stock Option Agreement (included in Exhibit 10.3). 10.5 Contingent Bonus Plan of HCC Industries Inc., dated as of February 14, 1997. 10.6 Form of Contingent Bonus Plan Award Agreement (included in Exhibit 10.5). 10.7 Employment Agreement, dated as of February 14, 1997, by and between the Company and Andrew Goldfarb. 10.8 Employment Agreement, dated as of February 14, 1997, by and between the Companyand Christopher Bateman. 10.9 Employment Agreement, dated as of February 14, 1997, by and between the Companyand Richard Ferraid. 10.10 Financial Advisory Services Agreement, dated as of February 14, 1997, by and betweenWindward Capital Partners, L.P. and the Company. 10.11 Letter Agreement, dated February 14, 1997, from the Company to Windward CapitalPartners L.P., relating to fees. 10.12 Purchase Agreement, dated May 1, 1997, by and among the Company, the SubsidiaryGuarantors and Credit Suisse First Boston Corporation and Furman Selz LLC, asInitial Purchasers. 12. RATIO OF EARNINGS TO FIXED CHARGES. 12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Company. 21. SUBSIDIARIES. 21.1 Subsidiaries of the Company. 23. CONSENTS. 23.1 Consent of Coopers & Lybrand L.L.P. *23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company (included in Exhibit 5.1). 24. POWERS OF ATTORNEY. 24.1 Power of Attorney (included in signature page). 25 FORM T-1. 25.1 Statement of Eligibility and Qualification on Form T-1 of IBJ Schroder Bank & Trust Company, as Trustee under the Indenture relating to the Company's 10 3/4% Senior Subordinated Exchange Notes due 2007. 27. FINANCIAL DATA SCHEDULE. 27.1 Financial Data Schedule. 99. MISCELLANEOUS. *99.1 Form of Letter of Transmittal. *99.2 Form of Notice of Guaranteed Delivery. *99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. *99.4 Form of Letter to Clients. - -------- * To be filed by amendment. 2 EX-2.1 2 1ST AMEND & RESTMNT OF STOCK PURCH & SALE AGMNT EXHIBIT 2.1 FIRST AMENDMENT AND RESTATEMENT OF THE STOCK PURCHASE AND SALE AGREEMENT This First Amendment and Restatement of the Stock Purchase and Sale Agreement is entered into as of December 23, 1996, among HCC Industries Inc., a Delaware corporation ("Company"), HCC Windward L.L.C., a Delaware limited liability company ("HCC Windward"), Windward Capital Associates, L.P., a Delaware limited partnership ("Windward"), Windward/Park HCC, L.L.C., a Delaware limited liability company ("Windward/Park"), Windward/Merchant, L.P., a Delaware limited partnership ("Windward/Merchant"), Windward/Merban, L.P., a Delaware limited partnership ("Windward/Merban", and collectively with Windward, Windward/Park and Windward/Merchant, the "Windward Entities"), Metropolitan Life Insurance Company, a New York corporation ("MetLife", and collectively with the Windward Entities, the "Buyer Entities" or "Buyer"), and each of the stockholders of the Company set forth on the signature pages hereto (each a "Seller" and collectively, the "Sellers"). BACKGROUND A. Sellers own all of the outstanding capital stock of the Company. B. The Windward Entities desire to acquire certain shares of Common Stock from the Company and the Company desires to sell such shares to the Windward Entities. C. The Company desires to repurchase certain shares of Common Stock of the Company from Sellers and Sellers desire to sell such shares to the Company. D. The Company, HCC Windward and the Sellers are party to the Stock Purchase and Sale Agreement dated as of December 23, 1996 (the "Original Agreement"). E. The parties hereto desire to amend and modify the Original Agreement as set forth herein in accordance with Section 12.1 of the Original Agreement which provides that the Original Agreement may be amended only by written agreement of all parties thereto such that, among other things, Windward, Windward/Park, Windward/Merchant, Windward/Merban and MetLife shall each be made a party to the Original Agreement with certain rights and obligations as contemplated herein and the Buyer shall no longer be a party to the Original Agreement. AGREEMENT In consideration of the mutual promises contained herein and intending to be legally bound, the parties agree that the Original Agreement is hereby amended and restated in its entirety as follows: ARTICLE 1 DEFINITIONS 1.1 DEFINITIONS. ----------- For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms, when used in this Agreement and the Exhibits, Schedules, and other documents delivered in connection herewith, have the meanings assigned to them in this Section 1.1. ACCOUNTANT means Coopers & Lybrand L.L.P., independent public accountants. ACTION means any action, claim, complaint, investigation, petition, suit, or other proceeding, whether civil or criminal, in law or in equity, or before any arbitrator or Governmental Entity. ADJUSTED NET WORTH means the excess of total assets of the Company and its Subsidiaries over total liabilities of the Company and its Subsidiaries determined in accordance with GAAP, as reflected in the Balance Sheet, the Estimated Closing Balance Sheet, or the Audited Closing Balance Sheet, as the case may be, increased by the Positive Adjustments and decreased by the Negative Adjustments, as the case may be. AFFILIATE means a Person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. A Person shall be deemed to control another Person if such first 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. AGREEMENT means this First Amendment and Restatement of the Stock Purchase and Sale Agreement as amended or supplemented, together with all Exhibits and Schedules attached or incorporated by reference. ANCILLARY AGREEMENTS means the Deferred Purchase Price Agreement, the Management Agreement, the Shareholders Agreement, the Escrow Agreement, the Subordinated Note Agreement and the Employment Agreements. APPROVAL means any approval, authorization, consent, qualification, or registration, or any waiver of any of the foregoing, required to be obtained from, or any notice, statement, or other communication required to be filed with or delivered to, any Governmental Entity or any other Person. AUDITED CLOSING BALANCE SHEET means the balance sheet of the Company as of the Closing Date (immediately prior to the Closing without giving effect to the transactions 2 contemplated hereby) prepared in accordance with Section 2.5, which shall include a detailed calculation of Adjusted Net Worth. BALANCE SHEET means the unaudited balance sheet of the Company as of September 28, 1996. BALANCE SHEET DATE means September 28, 1996. BUSINESS means the manufacture, distribution and sale of hermetically sealed electronic connection devices as presently being conducted by the Company and its Subsidiaries and as reflected in the Financial Statements and the documents set forth in the Disclosure Schedule. BUSINESS DAY means a day of the year on which banks are not required or authorized to be closed in New York, New York or Los Angeles, California. CASH AMOUNT means $85,270,225 subject to adjustment pursuant to Section 2.5 below. Prior to the determination that the Audited Closing Balance Sheet is final and binding pursuant to Section 2.5(d), the Cash Amount will be based on the Estimated Closing Balance Sheet, and thereafter, the Cash Amount will be based on the Audited Closing Balance Sheet. CLOSING means the consummation of the transactions contemplated by this Agreement. CLOSING DATE means the date of the Closing. CODE means the Internal Revenue Code of 1986, as amended. COMMON STOCK means common stock of the Company, par value $0.10 per share. CONTINGENT AMOUNT means the principal amount payable to Sellers, if any, pursuant to the Contingent Payment Notes in accordance with the terms thereof. CONTINGENT PAYMENT NOTES means notes having terms and conditions substantially consistent with the term sheet attached hereto as Exhibit F. CONTRACT means any agreement, arrangement, bond, commitment, franchise, indemnity, indenture, instrument, lease, purchase order or license whether or not in writing. DEFERRED AMOUNT means $6,000,000. DEFERRED PAYMENT AMOUNT means an amount, if any, equal to the portion of the Deferred Amount that the Sellers are entitled to at or prior to the termination of the deferral period pursuant to the provisions of this Agreement and the Deferred Purchase Price 3 Agreement paid in accordance with Section 2.6 hereof and the Deferred Purchase Price Agreement. DEFERRED PURCHASE PRICE AGREEMENT means that certain Deferred Purchase and Security Agreement to be dated as of the Closing Date among the Company, the Buyer Entities, Sellers and a third party trustee or escrow agent (the "Trustee") acceptable to Windward and Sellers. DISCLOSURE SCHEDULE means the Schedules hereto delivered by the Company to Buyer. Any information set forth in any section of the Disclosure Schedule shall be deemed to be set forth in every other section of the Disclosure Schedule to the extent the applicability of such information to such other sections of the Disclosure Schedule is apparent on its face from the entry in the Disclosure Schedule or from the item disclosed therein. ENCUMBRANCE means any claim, charge, lease, covenant, easement, encumbrance, security interest, lien, option, pledge, right of others, mortgage, hypothecation, conditional sale, or restriction (whether on voting, sale, transfer, disposition, or otherwise), whether imposed by agreement, understanding, law, equity, or otherwise, except for any restrictions on transfer generally arising under any applicable federal or state securities law. ENVIRONMENTAL CLAIM means any notice, written or oral, by any Person alleging potential liability (including without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, personal injuries, toxic tort damages, assessments, evaluations in response to inquiries or requests from Governmental Entities, determinations or penalties) arising out of, based on or resulting from (a) the presence, or release or threatened release into the environment of any Hazardous Substance at any location, whether or not owned by the Company or any of its Subsidiaries or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. ENVIRONMENTAL LAW means all federal, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including, without limitation, laws and regulations relating to emissions, discharges, releases, or threatened releases of Hazardous Substances, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances. ENVIRONMENTAL LOSS means any Loss, including Losses relating to any claim (including, without limitation, toxic tort claims) of any third party, arising out of, based on or resulting from (a) the matters described in HCC Industries Environmental Status Report, including, without limitation, (i) the Company's liability with respect to the regional ground water contamination being addressed as the El Monte Operable Unit of the San Gabriel Valley Superfund site; (ii) soil and groundwater contamination at the Company's Rosemead, California facility presently undergoing voluntary remediation by the Company; (iii) ground- 4 water contamination at the Company's facility in Avon, Massachusetts presently being addressed through a remediation system approved by the Massachusetts Department of Environmental Protection and related property damage claims by Den Lea Corporation; (b) the environmental claims described in HCC Industries Litigation Summary as of September 30, 1996, including claims that were the subject of Sabin v. Hermetic Seal Corp. and Transport Properties, Inc. v. ---------------------------- ------------------------------ Hermetite Corp., and (c) remediation costs with respect to the Lakewood, New - --------------- Jersey facility required pursuant to the New Jersey Industrial Site Recovery Act. Environmental Losses shall include evaluations in response to inquiries or requests from Governmental Entities to the extent such evaluations are not the responsibility of the Company pursuant to Section 11.3(b). ERISA means the Employee Retirement Income Security Act of 1974, as amended, and the related regulations and published interpretations. ESTIMATED CLOSING BALANCE SHEET means the estimated balance sheet of the Company as of the Closing Date (immediately prior to the Closing without giving effect to the transactions contemplated hereby) delivered by the Company to Buyer and Sellers in accordance with Section 2.5., which shall include a detailed calculation of Adjusted Net Worth. FINANCIAL STATEMENTS means the HCC Merger Corp. and Subsidiaries Report on Consolidated Financial Statements for March 30, 1996, the Balance Sheet and the unaudited consolidated statement of earnings of the Company dated September 28, 1996, all of which have been previously delivered to Buyer. GAAP means generally accepted accounting principles in the United States, as in effect from time to time. GOVERNMENTAL ENTITY means any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal, or other instrumentality of any government (including any regulatory or administrative agency), whether federal, state, or local, domestic or foreign. HART-SCOTT-RODINO ACT means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the related regulations and published interpretations. HAZARDOUS SUBSTANCE means chemicals, pollutants, contaminants, wastes, toxic substances, substances that are defined or listed in, or otherwise classified pursuant to, any applicable Laws as "hazardous substances," "hazardous materials," "hazardous wastes" or "toxic substances," or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitibility, corrosivity, reactivity, carcinogenicity, reproductive toxicity or "EP toxicity," asbestos, and petroleum and drilling fluids, produced waters and other wastes associated with the exploration, development, or production of crude oil, natural gas or geothermal energy. 5 INDEBTEDNESS means, with respect to the Company and its Subsidiaries, without duplication (i) all indebtedness for borrowed money, (ii) the face amount of all letters of credit issued for the account of the Company or its Subsidiaries and, without duplication, all drafts thereunder, (iii) all obligations under capital leases (taken at the amount thereof accounted for as liabilities in accordance with GAAP), (iv) all net obligations under interest rate swap agreements, any interest rate cap agreement, any interest rate collar agreement or other similar agreement or arrangement designed to protect any Person against fluctuations in interest rates, and (v) any obligation guaranteeing or intending to guarantee any Indebtedness or other obligations of any other Person. INTANGIBLE PROPERTY means any trade secret, secret process, or other confidential information or know-how and any and all Marks. INTEREST RATE means a rate equal to the interest rate for the Term A facility under the Credit Agreement. LAW means any constitutional provision, statute or other law, rule, regulation, or interpretation of any thereof and any Order. LOSS means any action, cost, damage, disbursement, expense, liability, loss, deficiency, penalty, diminution in value, settlement or obligation of any kind or nature, including but not limited to interest or other carrying costs, penalties, reasonable legal, accounting, and other professional fees and expenses incurred in the investigation, collection, prosecution, determination and defense of claims, amounts paid in settlement, any incidental or consequential damages and any punitive damages payable to third parties that may be imposed on or otherwise incurred or suffered by the specified person. MANAGEMENT means the management of the Company. MARK means any brand name, copyright, patent, service mark, trademark, or trade name, and all registrations or applications for registration of any of the foregoing. MATERIAL ADVERSE EFFECT means any change in or effect on the Business or any part thereof, that would be materially adverse to the income, operations, assets or condition (financial or otherwise) of the Business taken as a whole. NEGATIVE ADJUSTMENTS means the sum of (i) all amounts required to redeem or repay the 12 1/2% Debentures and the 7 1/4% Debentures in excess of the amount accrued for such Indebtedness on the Estimated Closing Balance Sheet or the Audited Closing Balance Sheet, as applicable, (ii) any amount required to be paid to Walter Neubauer pursuant to the Neubauer Escrow Agreement in excess of the amount accrued for such purpose on the Estimated Closing Balance Sheet or the Audited Closing Balance Sheet, as applicable, and (iii) all amounts required to redeem or repay any other Indebtedness which may be required to be redeemed or repaid pursuant to the terms of the Credit Agreement in excess of the amount accrued for such Indebtedness on the Estimated Closing Balance Sheet or the Audited Closing Balance Sheet, as applicable, in each case, including any premium 6 and prepayment penalties, fees or expenses associated with such payment. Each of the foregoing shall be reduced by any Tax benefit reasonably expected to be actually realized by the Company in the Tax year of such payment. NET DEBT means (X) the Indebtedness of the Company and its Subsidiaries minus (Y) all cash and cash equivalents held by the Company and its Subsidiaries. NEUBAUER ESCROW AGREEMENT means that certain Escrow Agreement dated as of October 18, 1995, by and among U.S. Trust Company of California, N.A., as escrow agent, HCC Merger Corp. and Walter Neubauer, as amended by that certain Amendment No. 1 to Escrow Agreement dated as of February 21, 1996 and as amended by that certain Amendment No. 2 to Escrow Agreement dated as of July 3, 1996. NEUBAUER NOTE means that certain Promissory Note dated August 29, 1996 in principal amount of $11,000,000 issued by the Company in favor of Walter Neubauer, Trustee of the Walter Neubauer Family Trust. ORDER means any decree, injunction, judgment, order, ruling, assessment, or writ. PERMIT means any approval, filing, registration, consent, concession, license, permit, franchise, certificate of authority, or order, or any waiver of the foregoing, required to be issued by any Governmental Entity. PERMITTED ENCUMBRANCES means (a) Encumbrances, including statutory Encumbrances, with respect to the properties or assets of the Company and its Subsidiaries taken as a whole, that do not individually or in the aggregate materially impair or materially interfere with the value of or the present use of the properties or assets or otherwise materially impair present business operations at such properties; (b) Encumbrances for Taxes not yet delinquent or the validity of which are being contested in good faith by appropriate actions and which are not material in amount; and (c) Encumbrances reflected on the Balance Sheet or on the Disclosure Schedule. PERSON means an association, a corporation, an individual, a partnership, a trust, or any other entity or organization, including a Governmental Entity. POSITIVE ADJUSTMENTS means the reversal of any accrual (net of Taxes) for any Environmental Losses set forth on the Estimated Closing Date Balance Sheet or the Audited Closing Balance Sheet, as applicable. PRESENT VALUE means the present value of any future obligation determined by using a discount rate equal to the seven year rate for United States treasury obligations in effect at the time of such determination. REDEMPTION PERCENTAGE for each Seller means the percentage set forth by such Seller's name on Schedule A. 7 REDEMPTION PRICE means the sum of the Deferred Payment Amount, the Cash Amount and the Contingent Amount. SHARE PURCHASE PRICE means (A) the Redemption Price divided by (B) the aggregate number of shares of Common Stock being purchased from Sellers hereunder. SUBSIDIARY means any of the entities listed as Subsidiaries on Schedule 4.2. TAX means any foreign, federal, state, county, or local income, sales and use, excise, franchise, real and personal property, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, severance, or withholding tax or other tax, duty, fee, assessment or charge imposed by any Governmental Entity, any interest or penalties (civil or criminal) related thereto or to the nonpayment thereof, and any Loss in connection with the determination, settlement, or litigation of any Tax liability. TAX RETURN means a report, return, or other information required to be supplied to a Governmental Entity with respect to Taxes including, where permitted or required, combined or consolidated returns for any group of entities that includes any of its Subsidiaries. 1.2 OTHER DEFINED TERMS. ------------------- The terms set forth below are defined in the section of this Agreement set forth opposite each term: Board 8.2 Buyer Preamble Buyer Entities Preamble Company Preamble Company Environmental Reports 4.20 Confidentiality Agreement 12.2 Credit Agreement 8.6 Determined Amount 2.6 Environmental Action 11.3 Environmental Studies 6.10 EPA 2.6 ERISA Affiliate 4.14 Escrow Agent 2.7 Escrow Agreement 2.7 Evaluator 2.6 Expenses 12.12 Final Deferral Amount 2.6 HCC Windward Preamble Indemnified Party 11.5 Indemnifying Party 11.5 Independent Accountants 2.5 8 Independent Directors 8.2 Installment Amount 2.4 Intangible Property Agreements 4.7 Management Agreement 8.3 Material Contracts 4.5 MetLife Preamble Mezzanine Security Unit(s) 2.1 Mezzanine Stock 2.1 Mezzanine Unit Purchase Price 2.1 Mezzanine Warrants 2.1 Notes 2.1 Option Plans 8.4 Original Agreement Background PBGC 4.14 Plans 4.14 PRP's 2.6 Purchase Price 2.1 Real Properties 4.6 Repurchase Price 7.3 Repurchase Expiration Date 7.3 RI/FS 2.6 ROD 2.6 Sales Process 3.4 Seller(s) Preamble Sellers Directors 8.2 Shareholders Agreement 8.1 Subordinated Note Agreement 2.1 Tax Benefit 11.5 Title IV Plan 4.14 Trustee 1.1 WARN Act 4.23 Windward Preamble Windward Entities Preamble Windward Directors 8.2 Windward/Merban Preamble Windward/Merchant Preamble Windward/Park Preamble 7 1/4% Debentures 8.5 12 1/2% Debentures 8.5 9 ARTICLE 2 PURCHASE AND SALE 2.1 PURCHASE AND SALE OF COMMON STOCK, MEZZANINE WARRANTS AND NOTES --------------------------------------------------------------- Upon the terms and conditions contained herein, (i) The Windward Entities agree to purchase from the Company and the Company agrees to sell and issue to the Windward Entities, in accordance with the allocation of consideration payable by, and the number of shares of Common Stock to be received by, each Windward Entity, in each case, set forth in Schedule 2.1(i), at the Closing, free and clear of all Encumbrances (other than - --------------- Encumbrances created by the Windward Entities or in connection with the financing described in Section 5.7) an aggregate of 87,721 shares of Common Stock for an aggregate purchase price equal to $32,500,000 (the "Purchase Price"); and (ii) MetLife, Windward/Merban and Windward/Merchant agree to purchase (or cause such other Person designated by Windward to purchase, which in the case of the Mezzanine Stock and the Mezzanine Warrants (each as defined below) shall be Windward/Park in lieu of MetLife) from the Company and the Company agrees to sell to MetLife (or with respect to the Mezzanine Stock and the Mezzanine Warrants, Windward/Park), Windward/Merban and Windward/Merchant (or such other Person), the aggregate amount of each respective security to be received by each of MetLife (or with respect to the Mezzanine Stock and the Mezzanine Warrants, Windward/Park), Windward/Merban and Windward/Merchant, for the consideration payable by each such entity, in each case, set forth in Schedule 2.1(ii), at the Closing, free and clear of all Encumbrances (other than - ---------------- Encumbrances created by such Persons or in connection with the financing described in Section 5.7), for aggregate consideration of $22,500,000 (the "Mezzanine Unit Purchase Price"), (A) $22,500,000 in aggregate principal amount of notes of the Company (the "Notes") having terms and conditions substantially consistent with the term sheet attached hereto as Exhibit A as contemplated in the Subordinated Note Agreement to be entered into by the Company, MetLife, Windward/Merchant and Windward/Merban on the Closing Date (the "Subordinated Note Agreement"), for an aggregate purchase price of $19,308,453.04; and (B) (1) an aggregate of 8,614 shares of Common Stock (the "Mezzanine Stock"); and (2) contingent anti-dilution warrants substantially in the form attached hereto as Exhibit L (the "Mezzanine Warrants") to purchase up to 1,461 shares of Common Stock, for an aggregate purchase price of $3,191,546.96. Each $1,000 principal amount of Notes, .38284 shares of Mezzanine Stock and .06493 Mezzanine Warrants are hereinafter referred to as a "Mezzanine Security Unit" and all such units are hereinafter referred to as the "Mezzanine Security Units." At the request of MetLife and Windward/Park, the Mezzanine Security Units to be purchased by them shall be allocated with the Notes constituting such Mezzanine Security Unit being purchased by MetLife and the Mezzanine Stock and Mezzanine Warrants constituting such Mezzanine Security Unit being purchased by Windward/Park. Notwithstanding the foregoing, for all 10 purposes of this Agreement, the Mezzanine Stock and Mezzanine Warrants purchased by Windward/Park and the Notes purchased by MetLife shall be treated as Mezzanine Security Units owned by one Person. Each provision of this Agreement relating to Mezzanine Security Units shall be appropriately modified, as the context requires, with respect to MetLife and Windward/Park to reflect the separate ownership of the constituent securities. Any payments made in respect of a Mezzanine Security Unit shall be allocated between the constituent securities in the same relative percentages as the Mezzanine Unit Purchase Price was so allocated. 2.2 PURCHASE AND SALE OF SHARES. --------------------------- Upon the terms and conditions contained herein, each Seller severally and not jointly agrees to sell, assign, transfer, convey and deliver to the Company, and the Company agrees to purchase, redeem, accept, acquire and take assignment and delivery of the shares of Common Stock listed opposite such Seller's name on Schedule 2.2 hereto as being purchased for a price per share of ------------ Common Stock equal to the Share Purchase Price (which shall be an aggregate purchase price equal to the Redemption Price). 2.3 CLOSING. ------- The Closing shall be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP located at 919 Third Avenue, New York, New York at 9:00 a.m., on five Business Days following satisfaction of the conditions to Closing, or at such other time and place as the parties agree. 2.4 PAYMENT AND DELIVERY -------------------- The following actions shall take place at the Closing in the following order: (a) First, the Company shall deliver to each Windward Entity certificates representing the Common Stock which such Windward Entity is purchasing from the Company, against delivery to the Company by such Windward Entity of its portion of the Purchase Price, such Purchase Price to be paid by wire transfer of immediately available funds to a bank account designated by the Company. (b) Next, each Seller shall deliver to the Company certificates representing the Common Stock that such Seller is selling to the Company and Company shall pay to each Seller an amount equal to such Seller's Redemption Percentage of such portion of the Cash Amount equal to the excess of the Cash Amount over the Installment Amount, in the manner specified by each Seller as set forth on Schedule 2.2, payable by wire transfer of immediately available funds on the Closing Date to accounts designated by such Sellers to the Company in writing at least one day prior to the Closing Date. (c) Next, the Company shall deliver to each of MetLife (or Windward/Park in the case of the Mezzanine Stock and the Mezzanine Warrants), Windward/Merban and Windward/Merchant (or such other Person designated by Windward) (i) the duly executed 11 Notes which MetLife, Windward/Merban and Windward/Merchant (or such other Person) is purchasing from the Company, (ii) certificates representing the Mezzanine Stock, and (iii) the duly executed Mezzanine Warrants, against delivery to the Company by MetLife and such Windward Entities (or such other Person) of its respective portion of the Mezzanine Unit Purchase Price, such Mezzanine Unit Purchase Price to be paid by wire transfer of immediately available funds to a bank account designated by the Company to Windward one day prior to the Closing Date. (d) Next, the Company shall deliver to each Seller a Contingent Payment Note in a principal amount equal to the amount set forth for such Seller on Schedule 2.2. (e) Next, the Company shall deliver to the Trustee the letter of credit or cash contemplated by Section 2.6(d) in the amount of the Deferred Amount. (f) Next, the Company shall deliver the remaining portion of the Cash Amount which was not distributed to the Sellers in accordance with clause (b) above, which such amount shall be equal to $69,282,486 (the "Installment Amount"), to the Escrow Agent (as defined below) to be distributed by the Escrow Agent in accordance with Section 2.7 hereof. 2.5 ADJUSTMENTS AND POST-CLOSING AUDIT. ---------------------------------- (A) DELIVERY OF ESTIMATED CLOSING BALANCE SHEET. Five days prior to the Closing Date, the Company shall deliver to Buyer the Estimated Closing Balance Sheet. The Estimated Closing Balance Sheet shall be prepared by Company in accordance with GAAP applied on a basis consistent with the past practice of the Company in preparation of the Balance Sheet based on the books and records of the Company. Buyer shall be afforded the opportunity to review and participate in the preparation of the Estimated Closing Balance Sheet. The Cash Amount shall be adjusted as follows: (i) If the Adjusted Net Worth set forth in the Estimated Closing Balance Sheet exceeds $3,777,224, then the Cash Amount shall be increased by the amount of such excess. (ii) If the Adjusted Net Worth set forth in the Estimated Closing Balance Sheet is less than $3,777,224, then the Cash Amount shall be decreased by the amount of such deficiency. (B) PREPARATION OF AUDITED CLOSING BALANCE SHEET. (i) As soon as possible after the Closing, but not later than 60 days after the Closing, the Company shall prepare and deliver to Buyer and Sellers the Audited Closing Balance Sheet, accompanied by an audit report of Accountant with respect thereto. 12 (ii) The Audited Closing Balance Sheet shall be prepared by the Company in accordance with GAAP applied on a basis consistent with the past practice of the Company in preparation of the Balance Sheet and the Estimated Closing Balance Sheet. (C) FINAL ADJUSTMENT TO CASH AMOUNT. Within five Business Days after the date that the Audited Closing Balance Sheet is deemed final and binding pursuant to Section 2.5(d) below: (i) If the Adjusted Net Worth set forth in the Audited Closing Balance Sheet exceeds the Adjusted Net Worth set forth in the Estimated Closing Balance Sheet, then the Cash Amount shall be increased by such amount and the Company shall pay to each Seller such Seller's Redemption Percentage pro-rata portion of such excess. (ii) If the Adjusted Net Worth set forth in the Audited Closing Balance Sheet is less than the Adjusted Net Worth set forth in the Estimated Closing Balance Sheet, then the Cash Amount shall be decreased by such amount and each Seller shall pay to the Company such Seller's Redemption Percentage pro-rata portion of such deficiency. (D) DISPUTES. Windward, Sellers and their respective accountants shall have the right to review the work papers of the Company and Accountant (to the extent made available to the Company) utilized in preparing the Audited Closing Balance Sheet. The Audited Closing Balance Sheet with the report thereon of Accountant shall be final and binding on the parties with respect to the Adjusted Net Worth on the Closing Date, unless Windward or Sellers present to the Company within 20 days after its receipt of the Audited Closing Balance Sheet from the Company, written notice of disagreement specifying in reasonable detail the nature and extent of the disagreement. If Windward and Sellers are unable to resolve any disagreement with respect to the Audited Closing Balance Sheet within 15 days after the Company receives a timely notice of disagreement, the items of disagreement alone shall be referred for final determination to the Chicago office of Price Waterhouse, or if the Chicago office of Price Waterhouse, is unable or unwilling to make such final determination, to such other independent accounting firm as the parties shall mutually designate. (The Chicago office of Price Waterhouse or such other accounting firm is referred to herein as the "Independent Accountants"). The Audited Closing Balance Sheet shall be deemed to be binding on Buyer and Sellers upon (i) Windward's failure to deliver to the Company a notice of disagreement within 20 days of its receipt of the Audited Closing Balance Sheet prepared by the Company, (ii) resolution of any disagreement by mutual agreement of the parties after a timely notice of disagreement has been delivered to the Company, or (iii) notification by the Independent Accountants of their final determination of the items of disagreement submitted to them. 13 (E) MISCELLANEOUS. (i) The Company shall be responsible for all fees and disbursements of Accountant and the Independent Accountant in connection with auditing the Audited Closing Balance Sheet. (ii) Any payment required to be made pursuant to this Section shall bear interest from the Closing Date through the date of payment at the a rate equal to the Interest Rate minus the "Applicable Margin for the Term A Facility" as defined in the Credit Agreement. Notwithstanding the generality of the foregoing provisions of this Section 2.5, for the purposes of the Estimated Closing Balance Sheet and the Audited Closing Balance Sheet, (i) the book value of the Company's facility at Avon, Massachusetts shall be the book value as reflected on the Balance Sheet and (ii) the after tax accrual for Environmental Losses (and accordingly, the Positive Adjustment) shall not exceed $300,000. 2.6 APPLICATION OF THE DEFERRED AMOUNT. ---------------------------------- The Deferred Amount will be applied as set forth in Section 11.1 hereof and the Deferred Payment Amount will be paid to Sellers pursuant to the Deferred Purchase Price Agreement as follows: (a) Within 60 days after the United States Environmental Protection Agency ("EPA") has accepted as complete the Remedial Investigation/Feasibility Study ("RI/FS") for the El Monte Operable Unit of Area 1 of the San Gabriel Superfund Site conducted by the potentially responsible parties ("PRP's"), an amount will be released to Sellers equal to the Deferred Amount remaining at such time minus the sum of (i) an amount equal to 200% of the Present Value of the Company's share of the most costly remedy analyzed in the RI/FS attributable to the Rosemead, California facility, based upon percentage allocations then being used by the PRP group, (ii) an amount that Buyer and Sellers shall have agreed on the first anniversary following the Closing Date is a reasonable estimate of the Present Value of the cost to complete both on-site soil and groundwater remediation at the Rosemead facility (including, but not limited to, the cost of remediating any contamination caused by the Company or its Subsidiaries found beneath the building in the testing recommended by ICF Kaiser in the report referred to in Schedule 4.20 to the extent the remediation is related to the subject matter of the recommended testing) and remediation of groundwater contamination and resolution of associated third-party claims, including claims by Den Lea, at the Avon, Massachusetts facility (the "Determined Amount"), and (iii) the Present Value of the reasonably estimated costs and expenses with respect to all other environmental Losses for which Sellers are responsible pursuant to Section 11.3 hereof based on actual claims made prior to the termination of the survival period with respect thereto and not previously paid. (b) On the earlier to occur of (1) 60 days after a Record of Decision ("ROD") issued by the EPA for the El Monte Operable Unit of Area 1 of the San Gabriel Superfund 14 Site becomes final, and (2) the seventh anniversary of the Closing Date, the Company and Sellers will for a period of 30 days negotiate in good faith a determination of (i) an amount equal to the Present Value of the Company's share of the remedy selected by the EPA in the ROD attributable to the Rosemead, California facility, based upon percentage allocations then being used by the PRP group, (ii) the Determined Amount, to the extent deductions have not been made from the Deferred Amount with respect to claims; and (iii) the Present Value of the reasonably estimated costs and expenses with respect to all other environmental Losses for which Sellers are responsible pursuant to Section 11.3 hereof based on actual claims made prior to the termination of the survival period with respect thereto and not previously paid (the sum of clauses (i), (ii) and (iii) above shall be referred to as the "Final Deferral Amount"). To the extent that the remaining portion of the Deferred Amount exceeds the Final Deferral Amount, any such excess shall be paid to Sellers. To the extent Final Deferral Amount exceeds the remaining portion of the Deferred Amount, the Sellers shall pay such excess to the Company and in such event, the Sellers shall have no further obligations with respect to the environmental matters covered by Section 11.3. (c) In the event the Company and Sellers cannot agree on the Determined Amount, the Final Deferral Amount or any determination of Present Value pursuant to Section 2.6(a) or (b), the Company and Sellers shall submit the controversy to an independent third party evaluator for resolution (the "Evaluator"). The Evaluator shall be an expert in the field of environmental remediation. If the Company and the Sellers cannot agree on a Person to act as an Evaluator, each of the Company and the Sellers shall pick a proposed Evaluator, and the two proposed Evaluators shall pick a third person who shall act as sole Evaluator. The Evaluator shall, within 30 days of being retained, make a determination of the Final Deferral Amount (or any other matter brought before the Evaluator) and the Evaluator's determination shall be conclusive. The fees of the Evaluator under this Section 2.6(c) shall be split equally between the Sellers and the Company. (d) The Company's obligation to pay the Deferred Payment Amount will be secured by an escrow into which an amount equal to the Deferred Amount will be deposited at the Closing. Interest on the Deferred Amount will accrue on an after Tax basis with reference to the interest earned on the escrowed funds and applied in accordance with Sections 2.6(a) and (b) above. As an alternative form of security, the Company shall endeavor to have its obligation to pay the Deferred Payment Amount secured by a letter of credit initially in the amount of the Deferred Amount. If such an arrangement can be made in a manner reasonably satisfactory to Windward, the letter of credit will not be subject to increase and will be reducible as claims for Losses are either agreed upon or determined by a third-party arbitrator or Evaluator and actually paid by the Company to Buyer. In such case, (i) the letter of credit will be renewable each year and subject to draw by the Sellers if the Company does not meet its payment obligations under this Agreement or the Deferred Purchase Price Agreement (or if a new letter of credit is not in place prior to an existing one expiring) and (ii) interest on the Deferred Amount from time to time calculated at a rate equal to the Interest Rate less the percentage fee for the letter of credit will accrue to the Deferred Amount on a pre tax basis (so long as it is tax neutral to the Company), will be compounded quarterly and will be applied in accordance with Section 2.6(a) and (b) above. 15 (e) All payments made to the Sellers under this Section 2.6 shall be paid in accordance with each Seller's Redemption Percentage. All amounts payable in connection with the Deferred Amount shall be treated as payments of purchase price, except for amounts constituting interest under Section 483 of the Code or Treasury Regulation 1-1275-4(c)(4), as applicable, taken into account when actually paid for tax purposes and the Company and each of the Sellers shall report all amounts as such for all United States federal, state, and local income tax purposes. Neither the Company nor the Sellers shall take any position that is inconsistent with the characterization described in the prior two sentences unless otherwise required by a determination within the meaning of Section 1313(a)(1) of the Code. 2.7 DISTRIBUTION OF INSTALLMENT AMOUNT. ---------------------------------- Subject to the terms of and satisfaction of the conditions set forth in the escrow agreement attached hereto as Exhibit M (the "Escrow Agreement"), U.S. Trust Company of California, N.A. (the "Escrow Agent") shall deliver to each Seller such Seller's Redemption Percentage of the Installment Amount (including any interest accrued on such Installment Amount through the date of such payment), in the manner specified by each Seller as set forth on Schedule 2.2, by wire transfer of immediately available funds payable to the account designated by each Seller in writing to the Escrow Agent at least one day prior to such payment. The Escrow Agent shall make such distribution (and the Escrow Agreement shall so provide) upon delivery to the Escrow Agent of an opinion of O'Melveny & Myers to the effect that as of such date (i) an officers certificate of the Company under Section 2108 of the California Corporations Code has been filed with the California Secretary of State reflecting that as of the last record date for a shareholders meeting of the Company, the percentage of outstanding voting securities of the Company held by persons having an address in California is less than 40% (and no conflicting filing has been made or action taken) and (ii) Section 2115(a) of the California Corporations Code is not applicable to the Company; provided, that in no event shall any such -------- distribution occur prior to April 1, 1997. The Sellers shall be granted a security interest in the funds escrowed pursuant to the Escrow Agreement. Subject to the foregoing conditions, the Company's obligation to pay the Installment Amount shall be unconditional and not subject to offset. Prior to the distribution of the Installment Amount, each of the Buyers, the Sellers and the Company agrees not to take any action which would be reasonably likely to result in the Installment Amount not being distributed in accordance with the provisions of this Section 2.7. 16 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLERS Each Seller, severally and not jointly, represents and warrants to each Buyer Entity and the Company as follows: 3.1 OWNERSHIP OF SHARES. ------------------- Except as set forth in Schedule 3.1, each of the shares of Common Stock of such Seller to be sold to the Company hereunder at the Closing is free and clear of any Encumbrance or "adverse claims" (as such term is used in Article 8 of the Uniform Commercial Code). Upon transfer to the Company of certificates representing the number of shares of Common Stock set forth opposite such Seller's name on Schedule 2.2 as being purchased and payment therefor by the Company as provided herein, the Company will receive good and valid title to such shares free and clear of all Encumbrances or "adverse claims." Schedule 2.2 constitutes a complete and accurate list of all of the Common Shares owned by such Seller. Such Seller is the record and beneficial owner of and has good title to the Common Stock set forth opposite such Seller's name on Schedule 2.2. Except for this Agreement or as disclosed on Schedule 3.1, there are no Contracts, warrants, options, puts, calls or other commitments or understandings of any character to which such Seller is a party or by which any of such Seller's respective assets is bound relating to the issuance, sale, purchase, redemption, conversion, exchange, registration, ownership, voting or transfer of any shares of Common Stock or other capital stock of the Company or other securities convertible into capital stock of the Company. 3.2 DUE AUTHORIZATION AND CONFLICTS. ------------------------------- Such Seller has all requisite capacity and power to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. Each Seller represents and warrants that this Agreement has been duly and validly executed and delivered by such Seller and constitutes the legal, valid and binding obligation of such Seller, enforceable in accordance with their respective terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws and equitable principles relating to or limiting creditors' rights generally. The execution, delivery and performance of this Agreement and all other instruments, agreements, certificates and documents contemplated hereby by such Seller and the performance of the transactions contemplated hereby and thereby does not, on the date hereof, and will not, on the Closing Date, (i) violate or conflict with any Law which may be applicable to or binding on such Seller or such Seller's Common Stock; or (ii) violate or conflict with, or result in a material breach of, or constitute a default, or an event creating rights of acceleration or termination (or an event which, with or without notice or lapse of time or both, would constitute an acceleration or default) under, or permit cancellation of any material Contract to which such Seller is a party or by which such Seller or such Seller's Common Stock is bound, or result in the creation or imposition of any Encumbrance upon any of such Seller's Common Stock. 17 3.3 CONSENTS. -------- Except as required by the Hart-Scott-Rodino Act, or as set forth on Schedule 3.3, no Approval of, notice to, filing with, authorization of, exemption by, or consent or waiver of any person, entity, or public or Governmental Entity, is required for such Seller to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. 3.4 NO BROKERS OR FINDERS. --------------------- No agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of such Seller in connection with the negotiation, execution, or performance of this Agreement or the transactions contemplated by this Agreement or the sale process undergone by Sellers and their financial advisors in connection with any attempts to sell the Company or any of its Subsidiaries or any of their respective capital stock, assets or properties (the "Sales Process") is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement or such transactions, except Furman Selz LLC, as to which the Sellers shall have full responsibility and Buyer Entities and the Company shall have no liability. 3.5 INVESTMENT INTENT. ----------------- Such Seller is acquiring the Contingent Payment Notes being acquired by it hereunder for its own account for investment only and with no view to distributing any of such Contingent Payment Notes in any transaction or series of transactions in violation of applicable law. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as otherwise indicated on the Disclosure Schedule, the Company represents and warrants to each Buyer Entity as follows: 4.1 ISSUANCE OF SECURITIES. ---------------------- (a) The Common Stock to be purchased hereunder and to be issued pursuant to the Mezzanine Warrants will, upon issuance pursuant to the terms hereof and thereof, be duly and validly issued, fully paid and nonassessable and will be free from any Encumbrances (other than Encumbrances created by the Windward Entities or in connection with the financing described in Section 5.7). Based in part upon the representations of the Buyer in Article 5 of this Agreement, the Common Stock to be issued to the Windward Entities hereunder and pursuant to the Mezzanine Warrants, when issued and delivered pursuant to this Agreement or the Mezzanine Warrants, as the case may be, will be issued in compliance with federal and all applicable state securities laws. The Company has full right, 18 power and authority to issue to the Windward Entities all of the shares of Common Stock to by purchased by the Windward Entities pursuant to Section 2.1 hereof and to be issued pursuant to the Mezzanine Warrants. (b) The Notes and the Mezzanine Warrants to be purchased hereunder will, upon issuance pursuant to the terms hereof, be free from any Encumbrances (other than Encumbrances created by the respective Buyer or in connection with the financing described in Section 5.7). Based in part upon the representations of the respective Buyer in Article 5 of this Agreement, the Notes and the Mezzanine Warrants, when issued and delivered pursuant to this Agreement, will be issued in compliance with federal and all applicable state securities laws. The Company has full right, power and authority to issue the Notes and the Mezzanine Warrants being purchased pursuant to Section 2.1 hereof. 4.2 ORGANIZATION AND RELATED MATTERS. -------------------------------- The Company is a corporation duly organized, validly existing, and in good standing under the law of the State of Delaware. The Company has all necessary corporate power and authority to execute, deliver, and perform this Agreement and any related agree ments to which it is a party and to consummate the transactions contemplated hereby. Schedule 4.2 lists all Subsidiaries of the Company and correctly sets forth the capitalization of each such Subsidiary and the Company's ownership interest therein and the jurisdiction in which such Subsidiary was organized, as well as each jurisdiction where the Company and its Subsidiaries are qualified to do business. Each of such Subsidiaries is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation or organization. The Company and its Subsidiaries have all necessary corporate power and authority to own their respective properties and assets and to carry on their respective businesses as now conducted or currently proposed to be conducted and are duly qualified or licensed to do business as foreign corporations in good standing in all jurisdictions except where the failure to be so qualified or licensed would not have a Material Adverse Effect. Schedule 4.2 correctly lists the current directors and executive officers of the Company and each Subsidiary. True, correct, and complete copies of the respective charter documents of the Company and its Subsidiaries have been delivered to Buyer. The Company owns all of the issued and outstanding capital stock and any other debt or equity securities of each of its Sub sidiaries, and such capital stock is owned free and clear of all Encumbrances. 4.3 STOCK. ----- The authorized capital stock of the Company consists of 550,000 shares of common stock, $0.10 par value, of which 293,206 shares are issued and outstanding. Following consummation of the transactions contemplated hereby, on the Closing Date, the authorized capital stock of the Company shall consist of 550,000 shares of Common Stock, of which 143,569 shares will be issued and outstanding and all of such issued and outstanding shares of Common Stock shall be held by the Persons set forth in Schedule 4.3 in the amounts set forth on Schedule 4.3; provided that prior to the Closing, each Seller may make transfers for estate planning purposes so long as such Seller remains responsible for such Seller's obligations hereunder and such transfers do not effect the recapitalization 19 treatment of the transactions contemplated hereby. Except as set forth in Schedule 4.3, there are no outstanding Contracts or other rights to subscribe for or purchase, or Contracts or other obligations to issue or grant any rights to acquire, any capital stock or any other debt or equity securities or any securities convertible into such securities of the Company or any of its Subsidiaries, or to restructure or recapitalize the Company or any of its Subsidiaries. Other than pursuant to this Agreement, there are no outstanding Contracts of the Company or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any capital stock or any other debt or equity securities of any of such entities or to pay any dividend on or make any distribution in respect thereof. Except as set forth on Schedule 4.3, there are no restrictions on the transfer of shares of capital stock of the Company. All shares of capital stock of the Company and its Subsidiaries are duly authorized, validly issued, and, except for treasury shares, if any, outstanding are fully paid and nonassessable. Assuming the Company makes payment under the Neubauer Note and the Neubauer Escrow Agreement in accordance with its terms as set forth in Section 8.5 hereof, Walter Neubauer has no claims against the Company as a stockholder or otherwise and the shares of Common Stock contemplated by the terms of the Neubauer Escrow Agreement will not be outstanding and Walter Neubauer will have no further rights in respect thereof. There are no preemptive rights, rights of first refusal or similar rights in respect of any capital stock of the Company or any of its Subsidiaries. Except as set forth on Schedule 4.3, no Contract exists among holders of capital stock of the Company with respect to the ownership, holding, voting or any other rights or obligations with respect to such capital stock. Neither the Company nor any of its Subsidiaries owns, directly or indirectly, any capital stock or other ownership interest in any corporation, partnership, business association, joint venture or other entity (other than the Company's Subsidiaries) or is obligated to make any capital contribution or other investment in any Person. 4.4 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES. -------------------------------------------- (a) AUDITED FINANCIAL STATEMENTS. The Company has delivered to Buyer audited consolidated balance sheets for the Company and its Subsidiaries for each fiscal year ended March 30, 1996, April 1, 1995, April 2, 1994, April 3, 1993 and March 28, 1992 and the related consolidated statements of earnings, stockholders' equity, and cash flow for the periods then ended. All such financial statements have been examined by the Company's accountants whose reports thereon are included with such financial statements. All such financial statements have been prepared in conformity with GAAP applied on a consistent basis (except for changes, if any, required by GAAP and disclosed therein or as disclosed on Schedule 4.4) and are in accordance with the books and records of the Company and each of its Subsidiaries as of the dates and for the periods indicated. Such statements of earnings and cash flow present fairly in all material respects the results of operations and cash flows of Company and its Subsidiaries for the respective periods covered, and the balance sheets present fairly in all material respects the financial condition of the Company and its Subsidiaries as of their respective dates. Since March 30, 1996, there has been no change in any of the significant accounting policies, practices or procedures of the Company and/or its Subsidiaries. 20 (B) UNAUDITED INTERIM FINANCIAL STATEMENTS. The Company has delivered to Buyer consolidated balance sheets for the Company and its Subsidiaries at June 28, 1996 and September 30, 1996, and the related consolidated statements of earnings for the periods then ended. All such interim financial statements have been prepared in conformity with GAAP applied on a consistent basis (except for the absence of notes and normal recurring year-end adjustments or as disclosed on Schedule 4.4) and are in accordance with the books and records of Company and each of its Subsidiaries as of the dates and for the periods indicated. Except as set forth on Schedule 4.4, the statements of earnings present fairly in all material respects the results of operations of the Company and its Subsidiaries for the respective periods covered, and the balance sheets present fairly in all material respects the financial condition of the Company as of their respective dates. (C) NO OTHER LIABILITIES OR CONTINGENCIES. To the knowledge of the Company, there are no liabilities or other obligations of any nature, whether accrued, absolute, contingent, or otherwise (nor have any facts arisen or occurred which could reasonably be expected to form a basis therefor), which relate to the Company, any of its Subsidiaries or the Business except liabilities or other obligations that (i) are reflected on or disclosed in the Financial Statements, (ii) arise under this Agreement or the Ancillary Agreements or any other document entered into in connection herewith or therewith, or (iii) were incurred after the Balance Sheet Date in the ordinary course of business, (iv) relate to Environmental Claims based upon the activities of third parties unrelated to the Company or its Subsidiaries or (v) are set forth in Schedule 4.4. (D) NO MATERIAL ADVERSE CHANGES. Since the Balance Sheet Date (A) the Company and its Subsidiaries have conducted their respective businesses in the ordinary course consistent with past practice, and (B) whether or not in the ordinary course of business, there has not been, occurred or arisen: (i) any change in or event affecting the Company or any of its Subsidiaries, the Business or the Common Stock that has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or (ii) any agreement, condition, action or omission which would be proscribed by (or require consent under) Section 6.2 had it existed, occurred or arisen after the date of this Agreement. 4.5 MATERIAL CONTRACTS. ------------------ (a) Schedule 4.5 contains an accurate and complete list of Contracts to which the Company or any of its Subsidiaries is a party or by which any of them is bound or any of their respective assets is subject and that (i) after the date of the Balance Sheet, obligates the Company or any of its Subsidiaries to pay an amount in the aggregate of $50,000 or more (other than purchase orders in the ordinary course), (ii) is a supply Contract with any of the Company's ten largest customers, (iii) contains a covenant that limits or restricts the ability to compete or otherwise to conduct its business in any manner or place, (iv) evidences any liability or other obligation for money borrowed of any nature (whether incurred, assumed, 21 guaranteed or secured by any asset) in excess of $50,000, (v) grants a power of attorney, agency, or similar authority to another person or entity, (iv) contains a right of first refusal with respect to any assets with a fair market value in excess of $50,000, (vii) constitutes an employment or collective bargaining agreement or provides for severance benefits to any officer, director, or employee, or (viii) provides for acquisitions or dispositions of assets or other capital expenditures in the aggregate in excess of $100,000 (collectively, the "Material Contracts"). True, correct, and complete copies of the Material Contracts appearing in Schedule 4.5, including all amendments and supplements, have been made available to Buyer. Except as set forth in Schedule 4.5, each Material Contract is valid and binding and in full force and effect with respect to the Company or its Subsidiaries, as the case may be, and to the Company's knowledge, the other parties thereto. There has not occurred any alleged or actual breach or default, or event which would (with the passage of time, notice or both) constitute a breach or default or would result in the termination or acceleration of or the right to terminate or accelerate (with the passage of time, notice or both) by the Company or any of its Subsidiaries, under any of the Material Contracts by the Company or its Subsidiaries, as the case may be, or the Company's knowledge, the other parties thereto, which remains unremedied as of the date of this Agreement, except for those which would not reasonably be expected to have a Material Adverse Effect. (b) Pursuant to the terms of the applicable documents thereunder, the 12 1/2% Debentures, the 7 1/4% Debentures, and the Neubauer Note are redeemable or pre-payable by the Company or its Subsidiaries, as the case may be, on the Closing Date pursuant to Section 8.5 hereof, and no pre-payment penalty or other similar premium, fee or expense in connection with such redemptions or pre- payment is required pursuant to the terms of the 12 1/2% Debentures, the 7 1/4% Debentures or the Neubauer Note, and the applicable governing documents thereof. Except as set forth in Schedule 4.5 there is no Indebtedness of the Company and its Subsidiaries outstanding of any nature. 4.6 TITLE TO AND CONDITION OF PROPERTY. ---------------------------------- (a) The Company and its Subsidiaries each have good and marketable title to or other legal right to use all properties and assets (real, personal and mixed, tangible, and intangible), including, without limitation, all such properties and assets that it or they purport to own or have a legal right to use as reflected on the Balance Sheet or acquired after the date of the Balance Sheet (except for properties and assets disposed of for full and fair value since the date of the Balance Sheet, in the ordinary course of business and consistent with past prac tice). None of such properties or assets reflected on the Balance Sheet or acquired after the date of the Balance Sheet is subject to any Encumbrance except Permitted Encumbrances The Company and its Subsidiaries own, hold or lease all of the assets, properties, licenses and right which are reasonably necessary to carry on the Business as presently conducted (and will continue to do so immediately after giving effect to the Closing). (b) Except as set forth in Schedule 4.6, neither the Company nor any of its Subsidiaries owns any real property. The material leasehold properties held by the Company and its Subsidiaries as lessee and the properties listed on Schedule 4.6 are collectively 22 referred to herein as the "Real Properties." To the Company's knowledge, there are no (i) plans by any Governmental Entity which may result in the imposition of any general or special assessment relating to any of the Real Properties; (ii) variances, special exceptions, conditions or agreements pertaining to any of the Real Properties imposed on or granted by or entered into by the Company or any of its Subsidiaries, which are enforceable by any Governmental Entity; or (iii) written notices from any Governmental Entity (other than notices relating to the environmental matters disclosed with respect to Section 4.20) which have been received by the Company or Subsidiary requiring or calling attention to the need for any work, repair, construction, alteration or installation on, or in connection with, any of the Real Properties, except which in each case would not reasonably be expected to have a Material Adverse Effect. Except as disclosed in Schedule 4.6, to the knowledge of such Seller, no condemnation or emi nent domain proceeding against any Real Property is pending or threatened. All of such Company and Subsidiary properties and assets consisting of real estate, buildings, and equipment (whether owned or leased) currently used in the normal operations of the Business have been maintained in normal operating condition by the Company in a manner consistent with the normal maintenance procedures of the Company and, to the Company's knowledge, are free from material defects. 4.7 INTANGIBLE PROPERTY. ------------------- Schedule 4.7 lists all Marks and other items of Intangible Property in which the Company or its Subsidiaries have a material interest, other than Permits. The Company and its Subsidiaries have, free and clear of all Encumbrances (other than Permitted Encumbrances), ownership of and enforceable rights to all Intangible Property required for use in connection with the Business, except for those the absence of which could not reasonably be expected to have a Material Adverse Effect. The Company and its Subsidiaries do not use any Intangible Property by consent of any other person and are not required to and do not make any payments to others with respect thereto. Neither the Company nor any of its Subsidiaries has received any notice to the effect (or is otherwise aware) that the Intangible Property or any use by the Company or any of its Subsidiaries of any such property conflicts with or infringes (or allegedly conflicts with or infringes) the rights of any Person. The Company and its Subsidiar ies have entered into agreements (the "Intangible Property Agreements") with the employees listed on Schedule 4.7 substantially consistent with the form previously delivered to Buyer re garding the exclusive ownership by the Company or its Subsidiaries, as the case may be, of any Intangible Property developed or produced by such employee. 4.8 AUTHORIZATION; NO CONFLICTS. --------------------------- The execution, delivery, and performance of this Agreement, the Ancillary Agreements, and any related agreements by the Company and the performance of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of the Company and by all other necessary corporate action on the part of the Company. This Agreement, the Ancillary Agreements, and any related agreements constitute the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms except as such enforceability may be 23 limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws and equitable principles relating to or limiting creditors' rights generally. The execution, delivery, and performance of this Agreement, the Ancillary Agreements, and any related agreements by the Company and the performance of the transactions contemplated hereby and thereby will not (i) result in the imposition of any Encumbrance against any material asset or property of the Company or any of its Subsidiaries (other than Permitted Encumbrances), or (ii) violate or conflict with or constitute a breach or default, or an event creating rights of acceleration or termination (in each case, whether upon lapse of time or the occurrence of any act or event or otherwise) under (a) the charter documents or bylaws of the Company or any of its Subsidiaries, (b) any material Law to which the Company, its Subsidiaries or the Business is subject, or (c) any Material Contract. Except for matters identified in Schedule 4.8 as requiring that certain actions be taken by or with respect to a third party or Governmental Entity, the execution and delivery of this Agreement by the Company and the performance of this Agreement and any related or contemplated transactions will not require filing or registration with, or the issuance of any Permit by, or receipt of any Approval from, any other Person (including, without limitation, any other party to a Material Contract) or Governmental Entity under the terms of any applicable Laws or Contracts, except where failure to obtain or make the same would not prevent the Company from performing any of its obligations under this Agreement and would not, individually or in the aggregate, have a Material Adverse Effect. 4.9 LEGAL PROCEEDINGS. ----------------- Except as set forth in Schedule 4.9, there is no Order or Action pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any of their respective properties or assets that individually or when aggregated with one or more other Orders or Actions has, or could reasonably be expected to have, a material adverse effect on the Company's ability to perform the transactions contemplated by this Agreement or a Material Adverse Effect. 4.10 PERMITS. ------- The Company and its Subsidiaries hold all Permits that are required by any Governmental Entity to permit them to conduct, in all material respects, the Business as now conducted, and all such Permits are valid and in full force and effect and will remain so upon consummation of the transactions contemplated hereby. To the Company's knowledge, no challenge, revocation, suspension, cancellation or termination of any of such Permits is threatened or imminent that could reasonably be expected to have a Material Adverse Effect. The Company and its Subsidiaries are in material compliance with their respective obligations under such Permits. 4.11 COMPLIANCE WITH LAW. ------------------- Except as set forth in Schedule 4.11, the Company and its Subsidiaries are organized and have conducted the Business in accordance with and are not under investigation with respect to and have not been threatened in writing to be charged with or given written notice 24 that the continued operation of any assets does or will violate or conflict with, applicable Laws and are in compliance with all such Laws, to the extent applicable, except where the failure to so conduct its Business, or for violations which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 4.12 TRADE RECEIVABLES. ----------------- All trade receivables of the Company and its Subsidiaries relating to the Business and reflected on the Balance Sheet and on the Estimated Closing Balance Sheet represent sales made in the ordinary course of business, and, to the Company's knowledge, all such trade receivable are collectible and will be paid in a manner consistent with the past practice of the Company and its Subsidiaries, respectively. 4.13 INVENTORY. --------- All inventories of the Business reflected on the Balance Sheet were produced or acquired by the Company and its Subsidiaries in the ordinary course of business and are saleable and marketable (as determined in accordance with GAAP) and the Company and its Subsidiaries have good and marketable title to the inventory. The values at which the inventory is carried on the Balance Sheet reflect the customary valuation policy of the Company and its Subsidiaries (which fairly reflects the value of obsolete, spoiled or excess inventory) for stating inventory in accordance with GAAP, consistently applied. 4.14 EMPLOYEE BENEFITS. ----------------- (a) Schedule 4.14(a) contains a true and complete list of each deferred compensation and each bonus or other incentive compensation, stock purchase, stock option and other equity compensation plan; each severance or termination pay, medical, surgical, hospitalization, life insurance and other "welfare" plan, (within the meaning of section 3(a) of ERISA); each profit-sharing, stock bonus or other "pension" plan, (within the meaning of section 3(2) of ERISA); each employment, termination or severance agreement; in each case, that is sponsored, maintained or contributed to or required to be contributed to by the Company or by any trade or business, whether or not incorporated (an "ERISA Affiliate"), that together with the Company would be deemed a "single employer" within the meaning of section 4001(b) of ERISA, or to which the Company or an ERISA Affiliate is party, whether written or oral, for the benefit of any employee or former employee of the Company (the "Plans"). Schedule 4.14(a) identifies each of the Plans that is subject to section 302 or Title IV of ERISA (a "Title IV Plan") or section 412 of the Code. Except as specifically provided for in this Agreement, neither the Company not any ERISA Affiliate has any formal plan or commitment to create any additional employee benefit plan or modify or change any existing Plan. (b) With respect to each Plan, the Company has heretofore delivered or made available to Buyer each of the following documents: (i) a copy of the Plan and any amendments thereto (or if the Plan is not a written Plan, a description thereof); (ii) a copy of the most recent annual report and actuarial report, if required under ERISA, and the most 25 recent report prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 87; (iii) a copy of the most recent Summary Plan Description required under ERISA with respect thereto; (iv) if the Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement; and (v) the most recent determination letter received from the Internal Revenue Service with respect to each Plan intended to qualify under section 401 of the Code. No Title IV Plan is a "multiemployer pension plan," as defined in section 3(37) of ERISA, nor is any Title IV Plan a plan described in section 4063(a) of ERISA. (c) No liability or contingent liability under Title IV or section 302 of ERISA has been incurred by the Company or any ERISA Affiliate that has not been satisfied in full or accrued for, and no condition exists that presents a material risk to the Company or any ERISA Affiliate of incurring any such liability or contingent liability, other than liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC") (which premiums have been paid when due). The PBGC has not instituted proceedings to terminate any Title IV Plan and no condition exists that presents a material risk that such proceedings will be instituted. (d) Except as disclosed on Schedule 4.14(a), with respect to each Plan subject to Title IV of ERISA, the present value of accrued benefits under such plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such plan's actuary with respect to such plan did not exceed, as of its latest valuation date, the then current value of the assets of such plan allocable to such accrued benefits except as accrued for on the Balance Sheet. Except as disclosed on Schedule 4.14(a), no Plan subject to Section 302 of ERISA has incurred any "accumulated funding deficiency" (as defined in section 302 of ERISA), whether or not waived, as of the last day of the most recent fiscal year of such Plan ended prior to the Closing Date. (e) All contributions required to be made with respect to any Plan on or prior to the Closing Date have been timely made or are reflected on the Balance Sheet. (f) Except for matters which in the aggregate could not reasonably be expected to result in a Material Adverse Effect, neither the Company or any Plan or any trust created thereunder, nor any trustee or administrator thereof has engaged in a transaction in connection with which the Company, any Plan, any such trust, or any trustee or administrator thereof, could be subject to either a civil penalty assessed pursuant to section 409 or 502(i) of ERISA or a tax imposed pursuant to section 4975 or 4976 of the Code; each Plan has been operated and administered in accordance with its terms and applicable law, including but not limited to ERISA and the Code or there are no pending, threatened or anticipated claims by or on behalf of any Plan, by any employee or beneficiary covered under any such Plan, or otherwise involving any such Plan (other than routine claims for benefit). (g) Each Plan intended to be "qualified" within the meaning of section 401(a) of the Code is so qualified and has received a determination letter from the IRS that it so qualified. 26 (h) No Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees or former employees of the Company for periods extending beyond their retirement or other termination of service, other than (i) coverage mandated by applicable law, (ii) death benefits under any "pension plan" as that term is defined in section 3(2) of ERISA, or (iii) benefits the full cost of which is borne by the current or former employee (or his beneficiary). (i) The consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former employee or officer of the Company or any ERISA Affiliate to severance pay, unemployment compensation or any other payment, except as expressly provided in this Agreement, or (ii) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee or officer. 4.15 TAX AND OTHER RETURNS AND REPORTS. --------------------------------- The Company and each of its Subsidiaries have timely filed all Tax Returns required to be filed by them and have paid or made adequate provision for all Taxes due from them by any Governmental Entity. Neither the Company nor any of its Subsidiaries has elected to be treated as a consenting corporation under Section 341(f) of the Code. All such Tax Returns, including amendments to date, are complete and accurate in all material respects and have been filed in the manner required by applicable law. Except as set forth in Schedule 4.15, (i) no Governmental Entity during the past three years has examined or is in the process of examining or has notified the Company or any of its Subsidiaries in writing of an intention to examine any Tax Returns of the Company or any of its Subsidiaries; (ii) no Governmental Entity has proposed against the Company or any of its Subsidiaries any deficiency, assessment, or claim for Taxes; (iii) the statute of limitations for all federal, Massachusetts state, California state, New Jersey state, and Ohio state income Tax Returns have expired or all such Tax Returns have been examined by the appropriate Governmental Entity for all taxable periods; (iv) there are no liens for Taxes upon any assets of the Company or any of its Subsidiaries other than statutory liens for Taxes not yet delinquent; (v) no power of attorney has been executed by the Company or any of its Subsidiaries with respect to any matter relating to Taxes that is currently in force; (vi) neither the Company nor any of its Subsidiaries is party to any agreement, contract, or other arrangement that would result, separately or in the aggregate, in the requirement to make any excess parachute payment within the meaning of Section 280G of the Code; (vii) neither the Company nor any of its Subsidiaries is a party to any Tax sharing agreement or arrangement; and (viii) all Taxes that the Company and its Subsidiaries are re quired by law to withhold or collect for payment have been duly withheld and collected and have been paid or accrued, reserved against, and entered on the books of the Company and its Subsidiaries. 4.16 NO BROKERS OR FINDERS. --------------------- No agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of the Company in connection with the negotiation, execution, or performance of this Agreement or the Sales Process is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement or 27 such transactions, except Furman Selz LLC, as to which the Sellers shall have full responsibility and Buyer Entities and the Company shall have no liability. 4.17 MINUTE BOOKS. ------------ The minute books of the Company and its Subsidiaries accurately reflect all material actions and proceedings taken to date by the respective stockholders, boards of directors, and committees of the Company and its Subsidiaries, and such minute books contain true and complete copies of the charter documents of the Company and its Subsidiaries and all related amendments and have previously been made available to Buyer. The stock record books of the Company and each Subsidiary reflect accurately all transactions in their respective capital stock of all classes. 4.18 DIVIDENDS AND OTHER DISTRIBUTIONS. --------------------------------- Except as set forth in Schedule 4.18, there has been no dividend or other distribution of assets or securities, whether consisting of money, property, or any other thing of value, declared, issued, or paid subsequent to the Balance Sheet Date by the Company. 4.19 CERTAIN INTERESTS. ----------------- No Affiliate of the Sellers or the Company or any of its Subsidiaries nor any officer or director of any thereof has any material interest in any property used in or pertaining to the Business or any customer or supplier doing business with the Company or any of its Subsidiaries. Except with respect to those Contracts listed on Schedule 4.19 and transactions between the Company and any of its Subsidiaries, neither the Company nor any of its Subsid iaries is a party to any transaction with any Affiliate of the Company, any of its Subsidiaries or any Seller. All Contracts listed on Schedule 4.19 have been entered into on an arms-length basis and are commercially reasonable. 4.20 ENVIRONMENTAL COMPLIANCE. ------------------------ (a) Except as set forth in Schedule 4.20, the Company and each of its Subsidiaries is in compliance with all applicable Environmental Laws, including, without limitation holding all Permits required under applicable Environmental Laws for the owner ship, use and operation of their properties and businesses as currently conducted and compliance with the terms and conditions of such Permits, except where the failure to so comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as set forth in Schedule 4.20, neither the Company nor any of its Sub sidiaries has received any communication (written or oral), whether from a governmental authority, citizens group, employee, or otherwise, that alleges that the Company or any of its Subsidiaries is not in such compliance, and, to the knowledge of the Company, there are no circumstances that may prevent or interfere with such compliance in the future. 28 (b) Except as set forth in Schedule 4.20, there is no Environmental Claim pending or, to the Company's knowledge, threatened against the Company or any of its Subsidiaries. (c) Except as set forth in Schedule 4.20, to the Company's knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents, on the part of the Company or any of its Subsidiaries including, without limitation, the release, emission, discharge or disposal of any Hazardous Substance, that could reasonably be expected to form the basis of any Environmental Claim against the Company or any of its Subsidiaries. (d) Except as set forth on Schedule 4.20, (i) neither the Company nor any of its Subsidiaries has generated, used, transported, treated, stored, released or disposed of, or has suffered or permitted anyone else to generate, use, transport, treat, store, release or dispose of any Hazardous Substance in connection with the Business in violation of any Laws; (ii) there has not been any generation, use, transportation, treatment, storage, release or disposal of any Hazardous Substance in connection with the conduct of the Business of the Company or any of its Subsidiaries or the use of any property or facility of the Company of any of its Subsidiaries or, to the knowledge of the Company, any nearby or adjacent properties or facilities, which has created or might reasonably be expected to create any liability under any Laws or which would require reporting to or notification of any Governmental Entity; (iii) no asbestos or polychlorinated biphenyl or underground storage tank is contained in or located at and no Hazardous Substance has been released by the Company or any of its Subsidiaries at any facility of the Company or its Subsidiaries; and (iv) any Hazardous Substance handled or dealt with in any way in connection with the businesses of the Company or any of its Subsidiaries, has been and is being handled or dealt with in all respects in compliance with applicable Laws. (e) The Company has previously provided to Buyer true and complete copies of any environmental investigation, study, audit, test, review or other analysis of any Person relating to the Real Property or any real property previously owned by the Company or any of its Subsidiaries which has been prepared by or for the Company or any of its Subsidiaries or of which the Company has possession (the "Company Environmental Reports"). 4.21 CONSENTS. -------- Except as required by the Hart-Scott-Rodino Act and the New Jersey Industrial Site Recovery Act, no notice to, filing with, authorization of, exemption by, or consent or waiver of any person, entity, or public or Governmental Entity, is required for the Company to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby which will not have been received prior to Closing. 4.22 INSURANCE. --------- Schedule 4.22 lists all policies of insurance or fidelity bonds of any kind or nature covering the Company or its Subsidiaries. Except as set forth in Schedule 4.22, there 29 is no claim pending nor has there been a claim made since January 1, 1994 under any such policy or bond as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds or in respect of which such underwriters have reserved their rights, and each such policy is in full force and effect. The Company and its Subsidiaries have complied with the terms and conditions of all such policies and bonds, and such policies will remain in effect immediately following the Closing. All workers compensation insurance is in full force and effect and no notice of any cancellation with respect to such insurance has been received. Complete and correct copies of each such policy have been made available to Buyer. 4.23 LABOR AGREEMENTS. ---------------- (a) Except to the extent set forth in Schedule 4.23: (i) there is no labor strike, dispute, slowdown, stoppage or lockout actually pending, or to the Company's knowledge, threatened against or affecting the Business and during the past three years there has not been any such action; (ii) to the Company's knowledge, no union claims to represent the employees of the Company or any of its Subsidiaries; (iii) none of the employees of the Company or any of its Subsidiaries is represented by any labor organization and the Company has no knowledge of any union organizing activities among the employees of the Company or any of its Subsid iaries currently in progress or occurring within the past three years, nor does any question concerning representation exist concerning such employees; (vi) there is no grievance arising out of any collective bargaining agreement or other grievance procedure which, if adversely deter mined, would have a Material Adverse Effect; and (v) to the Company's knowledge, neither the Company nor any of its Subsidiaries has received notice of the intent of any federal, state, local or foreign agency responsible for the enforcement of labor or employment laws or regulations to conduct an investigation with respect to or relating to the Company or any of its Subsidiaries and no such investigation is in progress. (b) Since the enactment of the Worker Adjustment and Retraining Notification Act (the "WARN Act"), neither the Company nor any of its Subsidiaries has taken any action that would subject it to any provisions of, or regulation under, the WARN Act or of any simi lar state, local or foreign law or regulation. Except as set forth on Schedule 4.23, none of the Company's or any of its Subsidiaries' employees has suffered an "employment loss" (as defined in the WARN Act) during the 90 day period prior to the date of this Agreement. 30 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER Each Buyer Entity, severally and not jointly, represents and warrants to the Company and Sellers as follows: 5.1 ORGANIZATION AND RELATED MATTERS. -------------------------------- Such Buyer Entity is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization. Such Buyer Entity has all necessary power and authority to execute, deliver, and perform this Agreement and any Ancillary Agreements to which it is a party. The primary place of business of such Buyer Entity is set forth on Schedule 5.1. 5.2 AUTHORIZATION. ------------- The execution, delivery, and performance of this Agreement, the Ancillary Agreements, and any related agreements by such Buyer Entity and the performance of the transactions contemplated hereby and thereby have been duly and validly authorized by such Buyer Entity and by all other necessary action on the part of such Buyer Entity. This Agreement, the Ancillary Agreements, and any related agreements constitute the legally valid and binding obligations of such Buyer Entity, enforceable against such Buyer Entity in accordance with their respective terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws and equitable principles relating to or limiting creditors' rights generally. 5.3 NO CONFLICTS. ------------ The execution, delivery, and performance of this Agreement, the Ancillary Agreements, and any related agreements by such Buyer Entity will not violate or constitute a breach or default (whether upon lapse of time or the occurrence of any act or event or otherwise) under (a) the organizational documents of such Buyer Entity, (b) any material law to which such Buyer Entity is subject, or (c) any Contract to which such Buyer Entity is a party that is material to the financial condition, results of operations, or conduct of the business of such Buyer Entity as the case may be. 5.4 NO BROKERS OR FINDERS. --------------------- No agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of such Buyer Entity or any of their Affiliates in connection with the negotiation, execution, or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement or such transactions. 31 5.5 LEGAL PROCEEDINGS. ----------------- There is no Order or Action pending or, to the knowledge of such Buyer Entity, threatened in writing against or affecting such Buyer Entity or any of their respective Affiliates or any of their respective properties or assets that individually or when aggregated with one or more other Orders or Actions has, or could reasonably be expected to have, a material adverse effect on such Buyer Entity's ability to perform this Agreement or any other aspect of the transactions contemplated by this Agreement. 5.6 INVESTMENT INTENT. ----------------- Such Buyer Entity, if it is acquiring Common Stock pursuant hereto, is acquiring the Common Stock and, if it is acquiring Notes pursuant hereto, is acquiring Notes being acquired by it hereunder, and if it is acquiring Mezzanine Warrants pursuant hereto, is acquiring Mezzanine Warrants being acquired by it hereunder, in each case, for its own account for investment only and with no view to distributing any shares of such Common Stock or any Notes or Mezzanine Warrants, as the case may be, in any transaction or series of transactions in violation of applicable law. 5.7 FINANCING. --------- The anticipated sources of financing as of the date hereof with respect to the transactions contemplated hereby are set forth on Schedule 5.7. Buyer Entities have access to financing necessary to fund the Purchase Price and the Mezzanine Unit Purchase Price and have provided to Sellers a commitment letter from Fleet Capital Corporation with respect to the Credit Agreement. 5.8 CONSENTS. -------- Except as required by the Hart-Scott-Rodino Act, no notice to, filing with, authorization of, exemption by, or consent of any person, entity, or public or Governmental Entity, is required for such Buyer Entity to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby which will not have been received prior to Closing. ARTICLE 6 COVENANTS WITH RESPECT TO CONDUCT OF BUSINESS PRIOR TO CLOSING 6.1 ACCESS. ------ The Company will and will cause its Subsidiaries to authorize and permit Buyer and their representatives to have reasonable access during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of 32 their respective businesses, to all of their respective properties, books, records, operating instructions, Tax records (including Tax Returns) and procedures and all other information with respect to the Business as Windward may from time to time reasonably request. 6.2 CONDUCT OF BUSINESS. ------------------- Neither the Company nor any of its Subsidiaries will, without the prior written consent of Windward, which may not be unreasonably withheld: (a) conduct the Business in any manner except in the ordinary course; (b) except as required by its terms or in the ordinary course of business, amend in any material respect, terminate, or renegotiate any Material Contract; (c) except in the ordinary course of business, incur or agree to incur any obligation or liability that individually calls for or guarantees payment by the Company or any of its Subsidiaries of more than $50,000 in any specific case or $200,000 in the aggregate; (d) grant any general or uniform increase in the rates of pay or benefits to officers, directors, or employees or any material increase in salary or benefits of any officer, director, or employee; pay any bonus to any person (other than bonuses to employees not to exceed the aggregate amount for such bonuses set forth in Schedule 6.2(d) which shall be paid at or prior to the Closing); or enter into, amend or supplement any employment, collective bargaining or severance agreement; (e) sell, transfer, mortgage, encumber, or otherwise dispose of any assets, except (i) for dispositions of property with a value not greater than $100,000 in the aggregate, or (ii) as contemplated by this Agreement; (f) issue, sell, redeem, or acquire for value any debt obligations or equity securities of the Company or any of its Subsidiaries, other than the Neubauer Note and Neubauer Escrow Agreement as contemplated by Section 8.5 hereof; (g) change or amend any of the charter documents or bylaws of the Company or any of its Subsidiaries; (h) other than as permitted or contemplated by this Agreement, declare, issue, make, or pay any dividend or other distribution of assets, whether consisting of money, other personal property, real property, or other thing of value, to its stockholders or otherwise pay, discharge or satisfy any claim, liability or obligation owing to Sellers, or split, combine, dividend, distribute, or reclassify any shares of its capital stock; (i) change any method or period of accounting; change any significant accounting policy, practice, or procedure; or introduce any new method of management or operation in respect of the Business; 33 (j) make any acquisition of or investment (or series thereof) by purchase, contributions to capital, property transfers, or otherwise, in any Person in excess of $100,000 in the aggregate; (k) make, revoke or amend any Tax election or settle or compromise any income tax liability, in either case, which is material to the Business, except as reserved for on the Balance Sheet; (l) enter into any transaction, arrangement or agreement with any Affiliate of the Sellers, the Company or any of its Subsidiaries (other than those in existence as of the date hereof); (m) merge or consolidate with any corporation or entity, or adopt a plan of complete or partial liquidation, dissolution, bankruptcy, restructuring, recapitalization or other reorganization; (n) take any other action which is intended to cause any of the representations and warranties made by Sellers or the Company in this Agreement not be true and correct in all material respect on and as of the Closing Date; or (o) agree to or make any commitment to take any action that is or would be prohibited by this Section 6.2. 6.3 HART-SCOTT-RODINO ACT. --------------------- As soon as practicable, Sellers, the Company and MetLife shall make any and all filings required under the Hart-Scott-Rodino Act and shall furnish each other such necessary information and reasonable assistance as the other may request in connection with its preparation of necessary filings or submissions to any governmental agency including, without limitation, any filings necessary under the provisions of said Act. Sellers and MetLife will supply to each other copies of all correspondence, filings or communications, including file memoranda evidencing telephonic conferences, representatives of either the Federal Trade Commission, the Antitrust Division of the United States Department of Justice, or any other governmental agency or authority or members of their respective staffs, with respect to this Agreement or the related transactions except for documents filed pursuant to Item 4(c) of the Notification and Report Form or communications regarding the same. 6.4 PERMITS AND APPROVALS; THIRD-PARTY CONSENTS. ------------------------------------------- Sellers, the Company and Buyer each agree to cooperate and use their best efforts to obtain (and will promptly prepare all registrations, filings, applications, requests, and notices preliminary to obtaining) all Approvals and Permits that may be necessary or that may be reasonably requested by Windward to consummate the transactions contemplated by this Agreement. 34 6.5 PRESERVATION OF BUSINESS PRIOR TO CLOSING DATE. ---------------------------------------------- During the period beginning on the date hereof and ending on the Closing Date: (a) the Company will use its reasonable efforts to preserve the Business, to keep and maintain the Company's and its Subsidiaries' assets and properties in normal operating condition and repair and to preserve the goodwill of customers, suppliers, employees, distributors and others having business relations with the Business; (b) the Company will maintain the policies of insurance and fidelity bonds set forth on Schedule 4.22 in full force and effect, and (c) the Company and Windward will consult with each other concerning, and the Company will cooperate to keep available to Buyer, the services of the officers and employees of the Company and its Subsidiaries that Windward may wish to retain. 6.6 ELIMINATION OF INTERCOMPANY AND AFFILIATE LIABILITIES. ----------------------------------------------------- Prior to the Closing Date, the Company shall cause to be eliminated through dividends, capital contributions, or otherwise, to the extent they relate to the Business: (a) any and all loans or other extensions of credit made or guaranteed by the Company or any of its Subsidiaries to or for the benefit of any director, officer, shareholder, or employee of the Company, or any of its Affiliates other than the Company or a Subsidiary; and (b) any and all loans, guarantees, or other extensions of credit of any amount made to or for the benefit of the Company or any of its Affiliates (other than the Company or a Subsidiary) by any of such persons. Neither Buyer, the Company, nor any of its Subsidiaries shall have any continuing commitment, obligation, or liability of any kind with respect to the persons referred to in subsections (a) and (b) above as a result of this Agreement, except as contemplated by this Agreement or any of the Ancillary Agreements. 6.7 BOOKS AND RECORDS. ----------------- The Company and each Subsidiary shall maintain their respective books, accounts and records in the usual, regular and ordinary manner, and on a basis consistent with the Financial Statements (subject to normal end-of-period adjustments) and past practices. The Company shall deliver to Windward as soon as available (i) copies of all material reports, renewals, filings, certificates, statements and other documents filed with any Governmental Entity relating to the Company or its Subsidiaries, (ii) monthly unaudited financial statements and monthly accounts receivable agings, and (iii) such other reports as Windward may reasonably request relating to the Company and its Subsidiaries. 6.8 NOTIFICATION OF CERTAIN MATTERS. ------------------------------- Sellers and the Company shall give prompt notice to Windward, and Windward shall give prompt notice to Sellers, of (i) the occurrence, or failure to occur, of any event that would be likely to cause any representation or warranty of such Seller or the Company contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Closing Date and (ii) the failure of Buyer, the Company or such Seller, as the case may be, to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under 35 this Agreement. In addition, Sellers and the Company will promptly notify Windward of any event of which such Seller or the Company, as the case may be, obtains knowledge which has had or might reasonably be expected to have a Material Adverse Effect or which if known as of the date hereof would have been required to be disclosed to Buyer. 6.9 NO SHOP. ------- Sellers and the Company shall not, and shall cause each of the Company's Subsidiaries (and each of their respective directors, officers, employees, advisors, representatives, agents and Affiliates) not to, directly or indirectly, encourage, engage in, solicit or initiate any discussions or negotiations with, or provide any information to (except, that in the event any Buyer Entity shall be obligated by law to publicly disclose (and does so disclose) that this Agreement exists, Sellers and the Company may provide information to other Persons for the sole purpose of advising them of the existence of this Agreement), or negotiate or enter into any agreement or agreement in principle with, any other Person, entity or group, with respect to a sale of the Company or its Subsidiaries, their assets or capital stock or any similar transaction. Sellers and the Company shall, and shall cause the Company's Subsidiaries (and each of their respective directors, officers, employees, advisors, representatives, agents and Affiliates) to, notify Windward of any action taken by any Person in connection with the foregoing sentence and shall provide Windward with any information, written or oral, obtained by such party in connection therewith. 6.10 ENVIRONMENTAL STUDIES. --------------------- The Company shall give access to the properties of the Company and its Subsidiaries to Buyer (and such individuals designated by Buyer) to the extent required to complete Phase I, Phase II and any other environmental studies (the "Environmental Studies") to the extent requested by Windward. 6.11 FINANCING. --------- Buyer shall use its reasonable best efforts to obtain the financing for the transactions contemplated hereby in order to satisfy Section 9.2(i) consistent with the terms of the commitment letter provided to Sellers set forth in Section 5.7 and as otherwise acceptable to Windward. 6.12 INTANGIBLE PROPERTY AGREEMENTS ------------------------------ The Company shall use its reasonable best efforts to enter into Intangible Property Agreements with each of the employees of the Company and its Subsidiaries designated by Windward prior to the Closing Date. 36 ARTICLE 7 ADDITIONAL CONTINUING COVENANTS 7.1 TAX COOPERATION. --------------- (A) COOPERATION. After the Closing, Sellers, the Company and Windward shall, and shall cause their respective Affiliates to, cooperate with the other parties in the preparation of all Tax Returns and shall provide, or cause to be provided, to the other parties any records and other information reasonably requested by such parties in connection therewith as well as access to, and the cooperation of, the auditors of the Company and Windward and their respective Affiliates. After the Closing, Sellers, the Company and Windward shall, and shall cause their respective Affiliates to, cooperate with the other parties in connection with any Tax investigation, audit, or other proceeding relating to the Business. Sellers shall have the right to review any Tax Return covering any period (or portion thereof) occurring on or prior to the Closing and shall have the right to approve any position taken in any such Tax Return that could give rise to indemnification by Sellers pursuant to Article 11. The Company will not file any amended Tax Return without Sellers' prior written approval (which shall not be unreasonably withheld) to the extent such amendment could give rise to a claim for indemnification by Seller pursuant to Article 11. (B) MAINTAIN RECORDS. For a period of five years after the Closing (or until the running of the applicable statute of limitations for the return in question), the Company, Windward and Sellers shall maintain all tax records, working papers, and other supporting financial records and documents relating to the Tax Returns filed by, on behalf of, or relating to the Company or any of its Subsidiaries or to any Taxes for the last closed year and for all open years and for their taxable years in which the Closing Date occurs. All such documents that relate primarily to the Company and its Subsidiaries will be delivered to and maintained by Windward during the period set forth above, and Windward will make the same available to Sellers or their agents at reasonable times for inspection and copying. All such remaining documents shall be retained by Sellers during the period set forth above, and Sellers will make the same available to Windward or its agents at reasonable times for inspection and copying. At the end of the period set forth above, Sellers or Windward, as the case may be, may dispose of such documents, provided that notice of such disposition must be given to the other parties at least 60 days in advance of such disposition. Upon receipt of such notice, Sellers or Windward, as the case may be, may request (at the requesting party's expense) that such documents be delivered to them in lieu of disposing of such documents. 7.2 RECAPITALIZATION TREATMENT. -------------------------- As of the date hereof and for a period of five years after the Closing, the Company and the Sellers shall cooperate with any reasonable requests of Windward related to the record ing of the transactions contemplated by this Agreement as a recapitalization for financial reporting purposes, including, without limitation, to assist Buyer and its affiliates with any presentation to any Person (including any Governmental Entity) with regard to such recording and to include appropriate disclosure with regard to such recording in all filings 37 with any Governmental Entity. In furtherance of the foregoing, the Company shall provide Windward, for the prior review and comment of Windward's advisors, any description of the transactions contemplated by this Agreement which is meant to be disseminated to any Person. 7.3 REPURCHASE RIGHTS. ----------------- The Company may, at any time on or prior to the date which is 180 days after the Closing Date (the "Repurchase Expiration Date"), repurchase from each of MetLife, Windward/Park, Windward/Merban and Windward/Merchant (or any Person to whom the Mezzanine Security Units have been transferred in accordance with Section 7.4 hereof) all, but no less than all, Mezzanine Security Units (including any shares of Common Stock issued upon exercise of the Mezzanine Warrants), and such Buyer Entities (or such other Person) shall sell and transfer to the Company all the Mezzanine Security Units (including any shares of Common Stock issued upon exercise of the Mezzanine Warrants) held by such Buyer Entity (or such other Person), for a purchase price payable to the Buyer Entities in the aggregate equal to the Mezzanine Unit Purchase Price (plus any accrued but unpaid interest on the Notes, if any, through the date of such repurchase) (the "Repurchase Price"), payable to each such Buyer Entity (or such other Person) in accordance with such Buyer Entity's pro rata ownership of the Mezzanine Security Units; provided, however, that the Company may only exercise -------- such right simultaneously (i) with respect to all Mezzanine Security Units (including any shares of Common Stock issued upon exercise of the Mezzanine Warrants), and (ii) with respect to each such Buyer Entity (or such other Person). The Company may exercise such right by providing written notice to each such Buyer Entity at least five days prior to the consummation of such repurchase, in which case, such Buyer Entities shall deliver to the Company all Notes, Mezzanine Warrants (including any shares of Common Stock issued upon exercise of such Mezzanine Warrants) and Mezzanine Stock in consideration for the Company's delivery of the Repurchase Price. In consideration for such repurchase rights set forth in this Section 7.3, the Company shall pay an aggregate of $500,000 to MetLife, Windward/Park, Windward/Merban and Windward/Merchant (or any Person to whom the Mezzanine Security Units have been transferred in accordance with Section 7.4 hereof), payable to each such Buyer Entity (or such other Person) in accordance with such Buyer Entity's pro rata ownership of the Mezzanine Security Units, such amounts to be paid to Windward, as agent for and on behalf of the holders of the Mezzanine Security Units, as follows: $250,000 shall be paid at Closing, and $250,000 shall be paid on the earlier to occur of the date the Company exercises such repurchase right and the Repurchase Expiration Date. 7.4 TRANSFER RESTRICTIONS. --------------------- Each of MetLife, Windward/Park, Windward/Merban and Windward/Merchant hereby agree that no Notes, Mezzanine Warrants (including any shares of Common Stock issued upon exercise of such Mezzanine Warrants) or Mezzanine Stock owned by such Buyer Entity or any interest therein may be sold, assigned, transferred or otherwise disposed of prior to Repurchase Expiration Date, unless such sale, transfer or disposition is of the 38 entire Mezzanine Security Unit (including any shares of Common Stock issued upon exercise of the Mezzanine Warrants) (i.e., the selling Buyer Entity sells the ---- same percentage of Notes, Mezzanine Stock and Mezzanine Warrants as the relative aggregate percentage of such constituent securities owned by such Buyer Entity), in which case such Person must have provided evidence satisfactory to Windward that such Person shall abide by the transfer restrictions set forth in this Section 7.4 and agree to be bound by the provisions of Section 7.3 of this Agreement, in each case, until the Repurchase Expiration Date. 7.5 ENVIRONMENTAL COMPLIANCE. ------------------------ The Sellers, in exercising their managerial rights contemplated by Section 11.3 hereof, shall comply in all respects with the terms, provisions and conditions set forth in the letter from Steven H. Goldfarb to Metcalf & Eddy, dated January 20, 1997, a copy of which is attached hereto as Exhibit N, with respect to the management and operation of the remediation of environmental matters relating to the Company's property located in Avon, Massachusetts as set forth in such letter except as otherwise directed by the Massachusetts Department of Environmental Protection in which case Sellers agrees to notify Windward in advance of taking any action inconsistent with such letter. The Company may deliver written notice of an Environmental Action as provided in Section 11.3 with respect to such compliance, in which event the resolution mechanism set forth in Section 11.3, to the extent not already applicable to such matter, shall also be applicable thereto. ARTICLE 8 SIMULTANEOUS TRANSACTIONS 8.1 SHAREHOLDERS AGREEMENT. ---------------------- At or prior to the Closing, the Windward Entities, Sellers and the Company shall enter into a Shareholders Agreement (the "Shareholders Agreement") having terms and conditions substantially consistent with the term sheet attached hereto as Exhibit B. 8.2 ORGANIZATIONAL DOCUMENTS. ------------------------ At or prior to the Closing, Sellers and the Company shall obtain or grant such approval, as the case may be, and shall take such other action as is necessary, including, without limitation, amending the Certificate of Incorporation and By-Laws of the Company, to cause (i) the Board of Directors of the Company (the "Board") to consist of, effective as of the Closing Date, 9 directorships, (ii) the Board to consist of the individuals set forth on Schedule 8.2 immediately following the consummation of the transactions contemplated by this Agreement, (iii) the Windward Entities to have the ability to appoint 6 directors to the Board, 3 of which who shall not be employees of Windward (the "Independent Directors") and 3 of which who may be affiliated with Windward (the "Windward Directors") and Sellers, collectively, to have the ability to appoint 3 directors to the Board (the "Sellers Directors"), (iv) all actions of the Board following the Closing Date to require the approval 39 of the Windward Directors; (v) the Independent Directors to be entitled to compensations substantially consistent with the term sheet attached hereto as Exhibit C; and (vi) the organizational documents of the Company to contain necessary provisions to reflect the understanding of the parties hereto that the Company's ability to conduct transactions with Affiliates shall be limited to the extent necessary to be fair to all stockholders of the Company. Windward shall have the ability to review and comment on any documentation reflecting such actions, including without limitation, any amendments to the Certificate of Incorporation and By-Laws of the Company. 8.3 MANAGEMENT AGREEMENT. -------------------- At or prior to the Closing, the Company shall enter into a Management Agreement (the "Management Agreement"), having terms and conditions substantially in the form of Exhibit D, with an Affiliate of Buyer. 8.4 OPTION PLANS. ------------ Prior to the Closing, the Company shall adopt option and contingent bonus plans (the "Option Plans") having terms and conditions substantially consistent with the term sheet attached hereto as Exhibit E and Exhibit F. Such plans shall be subject to approval by the stockholders of the Company immediately after the Closing. 8.5 EXISTING INDEBTEDNESS. --------------------- At or prior to the Closing, the Company will (i) redeem all of its outstanding 12 1/2% Convertible Subordinated Debentures due 2000 (the "12 1/2% Debentures") and all of its outstanding 7 1/4% Subordinated Debentures due 2001 (the "7 1/4% Debentures"), in each case, in accordance with the terms of the indentures governing the 12 1/2% Debentures and 7 1/4% Debentures, respectively, (ii) satisfy all obligations under the Neubauer Note, including, without limitation, the outstanding principal and interest thereon to be deposited with the escrow agent under the Neubauer Escrow Agreement and any additional payments due and payable to Walter Neubauer as a result of the transactions contemplated hereby and (iii) redeem or repay other Indebtedness which may be required to be redeemed or repaid pursuant to the terms of the Credit Agreement. 8.6 FINANCING. --------- (a) In connection with the transactions contemplated hereby, at or prior to the Closing, the Company shall enter into a credit agreement (the "Credit Agreement") on substantially the terms described on Schedule 5.7 hereto and otherwise acceptable to Windward, as Windward shall direct. (b) Windward will consult with the Company in connection with the negotiation of the terms of the financing described in Section 5.7 hereto. The Company agrees to provide, and will cause its Subsidiaries and its and their respective officers and employees to provide, to Buyer all necessary cooperation in connection with the arrangement 40 of the Credit Agreement, the Notes and any other financing to be consummated contemporaneous with or at or after the Closing in respect of the transactions contemplated by this Agreement, including without limitation, the execution and delivery of any pledge or security documents, underwriting or placement agreements, other definitive financing documents, or other requested certificates or documents as may be requested by Windward. ARTICLE 9 CONDITIONS OF PURCHASE 9.1 GENERAL CONDITIONS. ------------------ The obligations of the parties to effect the Closing shall be subject to the following conditions unless waived in writing by all parties: (A) NO INJUNCTIONS; ORDERS. No preliminary or permanent injunction or other Order shall have been issued and not removed by any court of competent jurisdiction or by any Governmental Entity, nor shall any statute, rule, regulation, or executive order be promulgated or enacted by any Governmental Entity, that restricts or prevents the consummation of the transactions contemplated hereby. (B) APPROVALS. To the extent required by applicable law, all material Permits and Approvals required to be obtained from any Governmental Entity shall have been received or obtained on or prior to the Closing Date without the imposition of any burdens or conditions materially adverse to the party or parties entitled to the benefit thereof, and any applicable waiting period under the Hart-Scott-Rodino Act shall have expired or been terminated. (C) SOLVENCY OPINION. Buyer, Sellers and the Company shall receive from a nationally recognized valuation firm an opinion in form reasonably satisfactory to Buyer and Sellers as to the solvency of the Company giving effect to the transactions contemplated by this Agreement including, the redemption of Sellers' shares of Common Stock and the financing. 9.2 CONDITIONS TO OBLIGATIONS OF BUYER. ---------------------------------- The obligations of each Buyer Entity to effect the Closing shall be subject to the following conditions except to the extent waived in writing by such Buyer Entity, as applicable: (A) REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE COMPANY AND SELLERS. (i) The representations and warranties of the Company and Sellers herein contained which are not qualified by materiality shall be true in all material respects at 41 and as of the Closing Date (except for those that speak as of a specific date which shall be true in all material respects at and as of such date) with the same effect as though made at such time; (ii) The representations and warranties of the Company and Sellers herein contained which are qualified by materiality shall be true in all respects at and as of the Closing Date (except for those that speak as of a specific date which shall be true in all respects at and as of such date) with the same effect as though made at such time; (iii) The representations and warranties of the Company and Sellers herein contained shall be true and correct in all respects at and as of the Closing Date (except for those that speak as of a specific date which shall be true in all respects at and as of such date) without regard to any materiality exceptions or qualifications contained therein, other than exceptions or qualifications which in the aggregate do not, and could not reasonably be expected to, have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole; (iv) Sellers and the Company shall have in all material respects performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing Date; and (v) Sellers and the Company shall have delivered to Buyer certificates of Sellers and the Company in form and substance satisfactory to Buyer, dated the Closing Date, to such effect with respect to the foregoing clauses (i) through (iv); provided, however, that if there is any inaccuracy in any such certificate related to any representation or warranty, Sellers shall have no liability for any such inaccuracy beyond the period of survival related to such representation and warranty set forth in Section 10.3 hereof. (B) NO MATERIAL ADVERSE CHANGE. There shall not have been any material adverse change in or affecting the Business subsequent to the date hereof. (C) RESIGNATION OF DIRECTORS AND CERTAIN OFFICERS. The directors and officers of the Company and its Subsidiaries listed in a letter to be delivered by Windward to the Company at least ten days prior to the Closing Date shall have submitted their resignations in writing to the Company and its Subsidiaries. Such resignations of officers and directors (in such capacity) shall be effective as of the Closing. (D) DEFERRED PURCHASE PRICE AGREEMENT. The Deferred Purchase Price Agreement shall have been executed and delivered by the Company, the Buyer Entities, Sellers and the Trustee. (E) EMPLOYMENT AGREEMENTS. Each of the employees listed on Exhibit J shall have entered into an employment agreement in form and substance satisfactory to Windward, which agreements shall have employment, non- competition and other terms as are described on Exhibit J. The foregoing employment agreements are intended to provide the Company with non-competition protection from key employees. 42 (F) RELATED TRANSACTIONS. Each of the Ancillary Agreements and the Credit Agreement shall have been executed and delivered, to the extent applicable, by Sellers and the Company; and the Company and the Sellers shall have taken such action as is necessary to effectuate the events contemplated by Section 8.2 and Section 8.4 hereof. (G) OPINION OF COUNSEL. Each Windward Entity shall receive at the Closing from O'Melveny & Myers, counsel to Sellers and the Company, an opinion dated the Closing Date addressed to each Buyer Entity in form and substance substantially as set forth in Exhibit H. (H) EXISTING INDEBTEDNESS. The Net Debt of the Company and its Subsidiaries shall not be in excess of $16,230,000 and arrangements reasonably satisfactory to Windward shall have been made by the Company so that prior to or concurrently with the Closing, the Indebtedness of the Company and its Subsidiaries required to be redeemed or repaid hereunder shall have been redeemed or pre-paid in accordance with Section 8.5 hereof. The Company shall have delivered to Windward evidence that such Indebtedness has been cancelled and that any Encumbrances that existed in connection therewith have been released as of the Closing Date. (I) FINANCING. The Company shall have received, on terms reasonably satisfactory to Buyer, the proceeds of the Credit Agreement required to consummate the transactions contemplated by this Agreement, including, without limitation, to pay transactions fees and expenses associated therewith. (J) CONSENTS. Sellers and the Company shall have obtained and provided to Buyer all required Approvals and Permits listed on Schedule 3.3. (K) CERTIFICATE. The Company shall have delivered to Buyer a certificate signed by the Chief Financial Officer of the Company, dated as of the Closing Date, to the effect that the information contained in the Estimated Closing Balance Sheet is true, complete and correct in all material respects. (L) ESCROW AGREEMENT. The Escrow Agreement shall have been executed and delivered by Sellers and the Company. (M) ENVIRONMENTAL MATTERS. (i) The results of the Environmental Studies shall, in the reasonable judgment of Windward, not differ in any material respect (either as to scope, costs, expenses, duration or otherwise) from the Company Environmental Reports previously provided to Buyer by Sellers and the Company, and Sellers shall have obtained any approval, decision or authorization required under the New Jersey Industrial Site Recovery Act to consummate the transactions contemplated hereby. (ii) The Company shall have received the approval of the Massachusetts Department of Environmental Protection to suspend the deadlines in the 43 Special Permit Conditions in the Norfolk Avon Realty Trust's Tier IB Permit to require a Phase II (Comprehensive Site Assessment) Report and, if necessary, a Phase III (Identification and Selection of Comprehensive Remedial Action Alternatives) until July 27, 1997. 9.3 CONDITIONS TO OBLIGATIONS OF SELLERS AND THE COMPANY. ---------------------------------------------------- The obligations of Sellers and the Company to effect the Closing shall be subject to the following conditions, except to the extent waived in writing by Sellers and the Company: (A) REPRESENTATIONS AND WARRANTIES AND COVENANTS OF EACH BUYER ENTITY. The representations and warranties of each Buyer Entity herein contained shall be true in all material respects at and as of the Closing Date (except for those that speak as of a specific date which shall be true in all respects at and as of such date) with the same effect as though made at such time; each Buyer Entity shall have in all material respects performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing Date; and each Buyer Entity shall have delivered to Sellers and the Company certificates of such Buyer Entity in form and substance satisfactory to Seller, dated the Closing Date to such effect. (B) ANCILLARY AGREEMENTS. Each of the Ancillary Agreements shall have been executed and delivered by Buyer, to the extent applicable. (C) OPINION OF COUNSEL. Sellers and the Company shall receive at the Closing from each of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Windward Entities and from counsel to MetLife, an opinion dated the Closing Date in form and substance substantially as set forth in Exhibit I, modified to the extent necessary to reflect the organizational structure of each Buyer Entity. ARTICLE 10 TERMINATION OF OBLIGATIONS; SURVIVAL 10.1 TERMINATION OF AGREEMENT. ------------------------ Anything herein to the contrary notwithstanding, this Agreement and the transactions contemplated by this Agreement shall terminate at the close of business on March 1, 1997 unless extended by mutual consent in writing of each Buyer Entity and the Company and may otherwise be terminated at any time before the Closing as follows and in no other manner: (A) MUTUAL CONSENT. By mutual written consent of Buyer and the Company. 44 (B) MATERIAL BREACH. By either of (i) any Buyer Entity, or (ii) the Company if there has been a material misrepresentation or material breach on the part of the other party in its representations, warranties, or covenants set forth herein; provided, however, that if such breach is susceptible to cure, Company or such Buyer Entity, as the case may be, shall have ten Business Days after receipt of notice from the other party of its intention to terminate this Agreement pursuant to this Section 10.1(b) in which to cure such breach before the other party may so terminate this Agreement. (C) ILLEGALITY. By either any Buyer Entity or the Company if there shall be a final, non-appealable order of a Governmental Entity of competent jurisdiction in effect preventing the Closing. 10.2 EFFECT OF TERMINATION. --------------------- If this Agreement shall be terminated pursuant to Section 10.1(a) or (c), all further obligations of the parties under this Agreement shall terminate without further liability of any party to another; provided, that the obligations of the parties contained in the second sentence of Section 12.9 and all of Section 12.12 shall survive any such termination. A termination under Section 10.1(b) shall not relieve any party of any liability for fraud or for a breach of, or for any misrepresentation under, this Agreement or be deemed to constitute a waiver of any available remedy (including specific performance if available) for any such breach or misrepresentation. 10.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. ------------------------------------------ Except as set forth in Section 11.7, the covenants and agreements contained in or made pursuant to this Agreement shall survive without limitation. The representations and warranties contained in or made pursuant to this Agreement shall expire eighteen (18) months after the Closing, except (i) for the representations and warranties contained in Article 3, Section 4.1 [Issuance of Securities], Section 4.3 [Stock] and Section 4.16 [No Brokers or Finders] which shall survive without limitation, and (ii) for the representations and warranties contained in Section 4.14 [Employee Benefits] and Section 4.15 [Tax and Other Returns and Reports] which shall survive for the applicable statute of limitations, in any case, except that if a claim or notice is given under Article 11 with respect to any representation or warranty prior to the expiration date, the claim with respect to such representation or warranty shall continue indefinitely until such claim is finally resolved. ARTICLE 11 INDEMNIFICATION 11.1 OBLIGATIONS OF SELLERS. ---------------------- (A) COMPANY INDEMNITY. 45 (i) If the Closing occurs, subject to Section 11.3(d), Sellers agree jointly and severally to indemnify and hold harmless the Company and its directors, officers, employees, Affiliates, agents and assigns from and against any and all Losses of any such Person, directly or indirectly, as a result of, or based upon or arising from, (A) the Sales Process, (B) any Taxes of the Company or any of its Subsidiaries attributable to any taxable period or portion thereof which begins before and ends on or prior to the Closing Date, or (C) any inaccuracy in or breach or nonperformance of any of the representations, warranties, covenants, or agreements made by the Company in or pursuant to this Agreement (other than the representations and warranties made pursuant to Article 3 and other than covenants to be performed by the Company after the Closing). For purposes of this Article 11, Taxes (and Tax deductions) of the Company or any of its Subsidiaries for any taxable period which begins before and ends after the Closing Date shall be allocated to the portion of such period ending on and including the Closing Date on the basis of a hypothetical closing of the applicable financial statements of the Company and its Subsidiaries, except with respect to Taxes described in Section 164(d) of the Code which shall be allocated to such portion on a per diem basis. (ii) If the Closing occurs, each Seller agrees to indemnify and hold harmless the Company and its directors, officers, employees, Affiliates, agents and assigns from and against any and all Losses of any such Person, directly or indirectly, as a result of, or based upon or arising from, any inaccuracy in or breach or nonperformance of any of the representations and warranties made by such Seller pursuant to Article 3. (B) BUYER INDEMNITY. (i) Subject to Section 11.3(d), Sellers agree jointly and severally to indemnify and hold harmless each Buyer Entity and each of their respective directors, officers, employees, Affiliates, agents and assigns from and against any and all Losses of any such Person, directly or indirectly, as a result of, or based upon or arising from, (A) the Sales Process, (B) any Taxes of the Company or any of its Subsidiaries attributable to any taxable period or portion thereof which begins before and ends on or prior to the Closing Date, or (C) any inaccuracy in or breach or nonperformance of any of the representations, warranties, covenants, or agreements made by the Company in or pursuant to this Agreement (other than, if the Closing occurs, the representations and warranties made pursuant to Article 3); provided that Buyer Entities shall not be entitled to indemnification for any Losses under this Section 11.1(b) if the Company has received indemnification under Section 11.1(a) for such Losses; provided further, that a diminution in value of the Company shall not, in and of itself, constitute a Loss to any Buyer Entity. (ii) Each Seller agrees to indemnify and hold harmless each Buyer Entity and each of their directors, officers, employees, Affiliates, agents and assigns from and against any and all Losses of any such Person, directly or indirectly, as a result of, or based upon or arising from, any inaccuracy in or breach or nonperformance of any of the representations and warranties made by such Seller pursuant to Article 3; provided that no Buyer Entity shall be entitled to indemnification for any Losses under this Section 11.1(b) if the Company has received indemnification under Section 11.1(a) for such Losses. 46 (C) REDUCTION OF DEFERRED AMOUNT. Subject to Section 11.4 below, the Deferred Amount shall be subject to reduction pursuant to the terms of the Deferred Purchase Price Agreement on account of any and all such Losses indemnified pursuant to Section 11.1 or Section 11.3 hereof. All claims for indemnification against Sellers pursuant to this Section 11.1, Section 11.3 or any other provision of this Agreement shall be made by the Company and/or any Buyer Entity and their respective officers, directors, representatives, and assigns, first against the Deferred Amount in accordance with the terms of this Agreement and the Deferred Purchase Price Agreement before any recourse is sought against any Seller. 11.2 OBLIGATIONS OF BUYER. -------------------- Each of the Buyer Entities, severally but not jointly, agrees to indemnify and hold harmless Sellers and the Company from and against any Losses of Sellers or the Company, directly or indirectly, as a result of, or based upon or arising from any inaccuracy in or breach or nonperformance of any of the representations, warranties, covenants, or agreements made by such Buyer Entity, as applicable in or pursuant to this Agreement provided, however that each Buyer -------- Entity shall only be responsible for any Losses directly attributable to such Buyer Entity, and only to the extent such Losses do not exceed such Buyer Entity's aggregate portion of the Purchase Price or the Mezzanine Unit Purchase Price, as applicable. 11.3 PROVISIONS RELATED TO INDEMNIFICATION FOR ENVIRONMENTAL LOSSES. --------------------------------------------------------------- (a) Sellers agree jointly and severally to indemnify, reimburse, defend and hold harmless the Company and each Buyer Entity and each of their respective directors, officers, employees, Affiliates, agents and assigns from and against any and all Losses of any such Person, directly or indirectly, as a result of, or based upon or arising from, or in connection with any of the following: (i) the events, circumstances, or conditions described in Schedule 4.20; (ii) Environmental Losses; and (iii) Any inaccuracy in or breach of the representations and warranties contained in Section 4.20 hereof. (b) Subject to the following provisions of this Section 11.3(b), the Sellers shall have complete authority to direct, manage, supervise, control and determine the scope and nature of the remediation of any environmental matter covered by the provisions of this Section 11.3. The Sellers shall, however, consult with the Company and keep the Company reasonably informed of all such matters. Without limiting the generality of the foregoing, the Sellers shall provide the Company with monthly reports on all remediation and the Company shall have reasonable notice of, and the opportunity to participate in, all meetings 47 and material phone calls relating to any such remediation. In addition, if the Company (A) reasonably believes that (i) the Sellers should be taking any remedial action with respect to environmental matters covered hereunder or should be taking a remedial action in a manner that differs from the manner directed by Sellers, or (ii) should not be taking certain action or should cease from taking action in a particular manner, or (B) reasonably disagrees with and believes the Sellers should be taking alternative action with respect to the Sellers' direction, management, supervision, control or determination of the scope and nature of the remediation hereunder (collectively, an "Environmental Action"), the Company shall give written notice to the Sellers to such effect, setting forth the requested Environmental Action. If after a period of 30 days of such notice, Sellers have not taken such Environmental Action, the Company may submit the issue of whether such Environmental Action should be taken to an Evaluator (designated in the same manner, and having the same qualifications. as in Section 2.6(c), and who may be the same Person designated pursuant to such Section). The Evaluator shall within 30 days of being retained, make a determination of whether the requested Environmental Action is necessary or required and the Evaluator's determination shall be conclusive. If the Evaluator determines that the Company's requested Environmental Action be taken, the Company's costs of the evaluation of such Environmental Action shall be a "Loss" for the purposes of this Section 11.3 and the fees of the Evaluator shall be the responsibility of Sellers. If the Evaluator determines that the Company's requested Environmental Action is not required, the costs of the evaluation and the fees of the Evaluator shall be the responsibility of the Company. At such time as the Company is responsible for the environmental matters covered hereby either on account of Section 11.4 or Section 2.6(b), the Company shall have control of the remediation of all such matters. (c) The Company agrees to release, indemnify and hold harmless Sellers from and against any Losses of Sellers, directly or indirectly, as a result of, or based upon or arising from all Environmental Losses, Environmental Claims or other environmental matters relating to the Company or any of its Subsidiaries to the extent Sellers are not required to provide indemnification to the Company or any Buyer Entity under this Article 11. (d) Notwithstanding anything to the contrary contained in this Article 11, the indemnification obligations of Christopher Bateman and Linda Rillorta and Richard and Debra Ferraid, with respect to the matters covered by this Section 11.3 shall be several only and not joint and several, limited to their respective Redemption Percentage of such obligations. 11.4 LIMIT ON SELLERS' INDEMNIFICATION. --------------------------------- (a) Sellers shall not be required to provide indemnification to the Company or any Buyer Entity under this Article 11 except to the extent that the aggregate amount of the Losses incurred by Company and any Buyer Entity exceeds $250,000. Anything in this Agreement to the contrary notwithstanding, Sellers shall have no obligation to indemnify the Company or any Buyer Entity with respect to any disputed item that was specifically determined by Accountant or Independent Accountant in accordance with Section 2.5. 48 (b) No Seller shall be required to provide indemnifications to the Company or any Buyer Entity under this Agreement once the amount of Losses paid (or deemed paid on account of a reduction of the Deferred Amount) by Sellers equals $30,000,000. (c) No Seller shall be required to provide indemnifications to the Company or any Buyer Entity under this Agreement to the extent such Losses were reflected in an accrual contained in the Audited Closing Balance Sheet for such amounts as reflected in such accruals, or in the case of Taxes, to the extent such Taxes are paid prior to the Closing Date or are reflected in accruals on the Audited Closing Balance Sheet. 11.5 PROCEDURE. --------- (A) NOTICE. Any party seeking indemnification (an "Indemnified Party") with respect to any Loss shall give notice thereof to the party required to provide indemnity hereunder (the "Indemnifying Party") on or before the date specified in Section 11.7 and within 30 days after receipt by the Indemnified Party of notice of any demand, claim, or circumstances which could give rise to a claim, or the commencement (or threatened commencement) of any action, proceeding, or investigation (including, without limitation, a notice of any Tax audit or of any request to waive or extend the statute of limitations applicable to the assessment or collection of any Tax), which could give rise to a right to indemnification pursuant to this Article 11; provided, however, that the failure -------- to so notify the Indemnifying Party or its obligations hereunder shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent the Indemnifying Party is actually prejudiced by such failure. (B) DEFENSE. If any claim, demand, or liability is asserted by any third party against any Indemnified Party, the Indemnifying Party shall have the right to direct, through counsel reasonably acceptable to the Indemnified Party, the defense or settlement of any action or proceeding brought against the Indemnified Party in respect of matters embraced by the indemnity. If the Indemnifying Party assumes the defense of any such claim or proceeding, the Indemnified Party may participate in such defense at its own expense. If the Indemnifying Party shall fail to defend or if after commencing or undertaking any such defense fails to prosecute or withdraw from such defense, the Indemnified Party shall have the right to undertake the defense or settlement thereof, at the Indemnifying Party's expense. If the Indemnified Party assumes the defense of any such claim or proceeding pursuant to this Section, the Indemnified Party may settle such claim or proceeding prior to a final judgment thereon or forego appeal with respect thereto, in either case, with the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. The parties shall cooperate in the defense of all third- party claims which may give rise to indemnifiable claims hereunder. In connection with the defense of any claim, each party shall make available to the party controlling such defense any books, records, or other documents within its control that are reasonably requested in the course of or necessary or appropriate for such defense. (C) TAX ADJUSTMENTS. Any amounts payable by the Indemnifying Party to or on behalf of an Indemnified Party in respect of a Loss (including any Environmental Loss) 49 shall be limited to the amount of any Loss that remains after deducting therefrom any Tax benefit realized by the Indemnified Party or any Affiliate thereof as a result of amounts paid (or any audit adjustment or deficiency with respect thereto, if applicable) in respect of such Loss (a "Tax Benefit"), but only to the extent such Tax Benefit results in an actual reduction of Taxes due in the year of the payment of the claim for indemnity (or a reduction of the Deferred Amount) or a refund for Taxes already paid. If any Tax Benefit is recognized by an Indemnified Party or any Affiliate thereof in any year subsequent to the year of the indemnity payment (or reduction of the Deferred Amount), if the Final Deferral Amount has not been determined, the Deferred Amount shall be increased by, or if the Final Deferral Amount has been determined, Sellers shall be paid in accordance with their respective Redemption Percentages, the amount of (i) the actual reduction in Taxes due and payable in such year below the amount of Taxes that would have been paid solely but for such Tax benefit or (ii) any refund of Taxes already paid to the extent attributable to such Tax Benefit. (D) INSURANCE MATTERS. If any Loss is covered by insurance, whether by the insurance policies disclosed on Schedule 4.22 or otherwise, the Company or Buyer shall use good faith efforts to exhaust claims against such policies. The provisions of this Article are subject to the rights of any Indemnified Party's insurer which may be defending any such claim. If the Indemnifying Party makes any payment hereunder of a Loss, the Indemnifying Party shall be subrogated, to the extent of such payment, to the rights of the Indemnified Party against any insurer or third party with respect to such Loss. (E) ADJUSTMENT. Any indemnity payment pursuant to this Agreement shall be treated as an adjustment to the Redemption Price (resulting in an adjustment to the Share Purchase Price). 11.6 ABSOLUTE INDEMNITY. ------------------ Except in the case of fraud, the indemnification provided in this Article 11 shall, in the event that the Closing occurs, constitute the exclusive remedy of the parties hereto and their respective directors, officers, employees, Affiliates, agents and assigns from and against any and all Losses asserted against, resulting to, imposed upon or incurred or suffered by, any of them, directly or indirectly, as a result of, or based upon or arising from the breach of any representation or warranty or the nonfulfillment of any agreement or covenant in or pursuant to this Agreement or any other agreement, document, or instrument required hereunder. 11.7 SURVIVAL. -------- This Article shall survive any termination of this Agreement. This indemnification shall survive the Closing and shall remain in effect for a period of eighteen months after the Closing Date, except (i) with respect to indemnification pursuant to Section 11.1 for breaches of the representations and warranties in Section 4.14 and Section 4.15, which shall remain in effect until expiration of the applicable statute of limitations, and (ii) with respect to indemnification pursuant to Section 11.1 for breaches of the representations and warranties in Article 3, Section 4.1, Section 4.3 and Section 4.16, with respect to the 50 matters set forth in clause (A) and clause (B) of the first sentence of each of Section 11.1(a)(i) and Section 11.1(b)(i) and for breaches of covenants and agreement contained herein, which shall remain in effect indefinitely and (iii) with respect to indemnification pursuant to Section 11.3(a)(i) and Section 11.3(a)(ii), which shall remain in effect until determination of the Final Deferral Amount. Any matter as to which a claim has been asserted by notice to the other party that is pending or unresolved at the end of any limitation period shall continue to be covered by this Article until such matter is finally terminated or otherwise resolved (subject to applicable statutes of limitations) by the parties and settled under this Agreement and any amounts payable hereunder are finally determined and paid. 11.8 MATERIALITY DEFINITION. ---------------------- "Material Adverse Effect" or "material" (as such terms are used in any representation or warranty contained in Article 3, Article 4 or Article 5) shall, for purposes of Section 11.1, Section 11.2 and Section 11.3 of this Agreement, be deemed to have occurred if the aggregate of all Losses related to any such representation or warranty shall exceed $200,000. ARTICLE 12 GENERAL 12.1 AMENDMENTS; WAIVERS. ------------------- This Agreement and any schedule or exhibit attached hereto may be amended only by agreement in writing of all parties. No waiver of any provision or consent to any exception to the terms of this Agreement or any agreement contemplated hereby shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent, and instance so provided. 12.2 EXHIBITS; SCHEDULES; INTEGRATION. -------------------------------- Each exhibit and schedule delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement, although schedules need not be attached to each copy of this Agreement. All references in this Agreement to schedules refer to schedules set forth in the Disclosure Schedule or such other schedules referred to hereunder. This Agreement, together with such exhibits and schedules, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith, excluding the Confidentiality Agreement dated September 16, 1996 (the "Confidentiality Agreement") between Windward Capital Partners, L.P. and the Company. 51 12.3 BEST EFFORTS; KNOWLEDGE. ----------------------- (A) COMMITMENT TO BEST EFFORTS. Each party will use its best efforts to cause all conditions to its obligations hereunder to be timely satisfied and to perform and fulfill all obligations on its part to be performed and fulfilled under this Agreement, to the end that the transactions contemplated by this Agreement shall be effected substantially in accordance with its terms as soon as reasonably practicable. The parties shall cooperate with each other in such actions and in securing requisite Approvals. Each party shall execute and deliver both before and after the Closing such further certificates, agreements, and other documents and take such other actions as the other parties may reasonably request to consummate or implement the transactions contemplated hereby or to evidence such events or matters. (B) LIMITATION. As used in this Agreement, the term "best efforts" shall not mean efforts that require the performing party to do any act that is unreasonable under the circumstances, to make any capital contribution, or to expend any funds other than in payment of customary and reasonable out-of-pocket expenses incurred in satisfying obligations hereunder, including but not limited to the fees, expenses, and disbursements of its accountants, actuaries, counsel, and other professional advisers. (C) KNOWLEDGE. As used in this Agreement, the terms "knowledge" or "knowledge and belief" when used with respect to the Company shall mean the "knowledge" or "knowledge and belief" of the executive officers of the Company. 12.4 GOVERNING LAW. ------------- This Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and performed in such State and without regard to conflicts of law doctrines except to the extent that certain matters are preempted by federal law or are governed by the law of the jurisdiction of organization or incorporation of the respective parties. 12.5 ASSIGNMENT. ---------- Neither this Agreement nor any rights or obligations hereunder shall be assignable except that Buyer may assign its rights and obligations (including the right to acquire the Common Stock and the Notes) to one or more wholly owned subsidiaries or Affiliates of Buyer or, with the consent of Sellers, not to be unreasonably withheld, to any other Persons and except that the Company may grant a security interest in, and assign its rights, title and interests in, to and under (in either case, only with respect to the Company's rights, title and interests (and not with respect to any other party's rights, title and interests) in, to and under this Agreement), this Agreement to Fleet Capital Corporation, as Agent, for the benefit of the Lenders (as such term is defined in the Credit Agreement), pursuant to the terms of the Assignment of Contracts as Collateral Security, dated as of February 14, 1997, by the Company in favor of the Agent. Buyer shall remain liable to the Company for the 52 payment of the Purchase Price and other obligations of Buyer hereunder notwithstanding a permitted assignment. 12.6 HEADINGS. -------- The descriptive headings of the articles, sections, and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement. 12.7 COUNTERPARTS. ------------ This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise therein provided) when one or more counterparts have been signed by each party and delivered to the other parties. 12.8 PUBLICITY. --------- The Company, Sellers and Buyer shall coordinate all publicity relating to the transactions contemplated by this Agreement, and no party shall issue any press release, publicity statement, or other public notice relating to this Agreement, or the transactions contemplated by this Agreement, without consulting with the other parties except to the extent that a particular action is required by applicable law. 12.9 CONFIDENTIALITY. --------------- The terms of the Confidentiality Agreement are hereby incorporated by reference and shall continue in full force and effect until the Closing, at which time such Confidentiality Agreement shall terminate as it relates to the Business but shall otherwise remain in full force and effect. If this Agreement is, for any reason, terminated prior to the Closing, the Confidentiality Agreement shall continue in full force and effect. 12.10 PARTIES IN INTEREST. ------------------- This Agreement shall be binding upon and inure to the benefit of each party, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement is intended to relieve or discharge the obligation of any third person to any party to this Agreement. 12.11 NOTICES. ------- Any notice or other communication hereunder must be given in writing and either (a) delivered in person, (b) transmitted by telex, telefax, or telecommunications mechanism, or (c) mailed by certified or registered mail, postage prepaid, receipt requested, set forth on 53 Exhibit K or to such other address or to such other person as any party shall have last designated by such notice to the other parties. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number so specified in (or pursuant to) this Section 12.11 and an appropriate answerback is received, (ii) if given by mail, three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when actually delivered to such address. 12.12 EXPENSES. -------- Subject to the provisions of the proviso below, each of Sellers, the Company and each Buyer Entity shall pay its own expenses incident to the negotiation, preparation, and performance of this Agreement and the transactions contemplated hereby, including but not limited to the fees, expenses, and disbursements of its investment bankers, accountants, and counsel and of securing third party consents and approvals required to be obtained by it (collectively, the "Expenses"); provided, however, that if the Closing occurs, the Company will pay (i) to Sellers, $1,000,000 to cover their Expenses, and (ii) to Windward Capital Partners, L.P. on behalf of the Windward Entities, such amounts as contemplated in a letter agreement to be executed by the Company and Windward Capital Partners, L.P. substantially consistent with the terms set forth in Exhibit B, and such payments shall have no effect on the Redemption Price. 12.13 REMEDIES; WAIVER. ---------------- To the extent permitted by law, all rights and remedies existing under this Agreement and any related agreements or documents are cumulative to, and not exclusive of, any rights or remedies otherwise available under applicable law. No failure on the part of any party to exercise, or delay in exercising, any right hereunder shall be deemed a waiver thereof, nor shall any single or partial exercise preclude any further or other exercise of such or any other right. 12.14 ATTORNEYS' FEES. --------------- In the event of any Action for the breach of this Agreement or misrepresentation by any party, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and expenses incurred in such Action. 12.15 REPRESENTATION BY COUNSEL; INTERPRETATION. ----------------------------------------- The Company, Buyer and each Seller acknowledges that it has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it, has no application and is expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of Buyer, Sellers and the Company. 54 12.16 SPECIFIC PERFORMANCE. -------------------- Each party hereto acknowledges that, in view of the uniqueness of the Business and the transactions contemplated by this Agreement, the other party would not have an adequate remedy at law for money damages in the event that this Agreement has not been performed in accordance with its terms. Each party therefore agrees that the other party shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which it may be entitled, at law or in equity. 12.17 SEVERABILITY. ------------ If any provision of this Agreement is determined to be invalid, illegal, or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect provided that the economic and legal substance of the transactions contemplated is not affected in any manner materially adverse to any party. In the event of any such determination, the parties agree to negotiate in good faith to modify this Agreement to fulfill as closely as possible the original intent and purpose hereof. To the extent permitted by law, the parties hereby to the same extent waive any provision of law that renders any provision hereof prohibited or unenforceable in any respect. 12.18 CONSENT TO JURISDICTION; SERVICE OF PROCESS; VENUE. -------------------------------------------------- Each party hereto hereby irrevocably and unconditionally (a) consents to the submission to the exclusive jurisdiction of the courts of the State of New York and of the United States of America located in the State of New York, county of Manhattan, for any Actions arising out of or relating to this Agreement and the transactions contemplated by this Agreement, (b) agrees not to commence any Action relating thereto except in such courts and in accordance with the provisions of this Agreement, (c) agrees that service of any process, summons, notice, or document by U.S. registered mail or as otherwise provided in this Agreement shall be effective service of process for any Action brought in any such court, (d) waives any objection to the laying of venue of any Action arising out of this Agreement or the transactions contemplated by this Agreement in the courts of the State of New York or the United States of America located in the State of New York, and (e) agrees not to plead or claim in any such court that any such Action brought in any such court has been brought in an inconvenient forum. 12.19 DAMAGES. ------- Notwithstanding anything to the contrary elsewhere in this Agreement, no party shall, in any event, be liable to any other party for any consequential damages, including, but not limited to, loss of revenue or income, cost of capital, or loss of business reputation or opportunity, relating to the breach or alleged breach of this Agreement. Each party agrees that it will not seek punitive damages as to any matter under, relating to, or arising out of this Agreement. 12.20 ARBITRATION. ----------- 55 Except for a claim arising under Section 12.16, any controversy or claim arising out of or relating to this Agreement, its enforcement or interpretation, or because of an alleged breach, default or misrepresentation in connection with any of its provisions, shall be submitted to arbitration, to be held in New York City in accordance with (but not under the auspices of) the American Arbitration Association Commercial Arbitration Rules in effect on the date the notice specified below is given, except as set forth in the following sentences. Within thirty (30) days after a demand for arbitration, each party shall appoint one arbitrator who shall be a disinterested person of recognized competence in the matter at issue; the two arbitrators so appointed shall select the third arbitrator who shall act as the sole arbitrator for the disputes in question. If either party fails to name an initial arbitrator, the single arbitrator so named shall act as arbitrator. Any award rendered in such arbitration shall be final and binding upon the parties, and judgment may be entered thereon in any court of competent jurisdiction. Written notice of the demand for arbitration shall be delivered in accordance with Section 12.11. The fee of the arbitrator shall be shared equally by the parties. This agreement to arbitrate, and the final ruling or decision of the arbitrator, shall be binding on the parties and specifically enforceable. 56 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized officers as of the day and year first above written. HCC WINDWARD L.L.C. By: Windward Capital Associates, L.P., a member By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: HCC INDUSTRIES INC. By:_______________________________ Name: Title: WINDWARD CAPITAL ASSOCIATES, L.P. By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: WINDWARD/PARK HCC L.L.C. By: Windward Capital Associates, L.P., its manager By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: WINDWARD/MERBAN, L.P. By: Windward Capital Associates, L.P., its general partner By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: WINDWARD/MERCHANT, L.P. By: Windward Capital Associates, L.P., its general partner By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: METROPOLITAN LIFE INSURANCE COMPANY By:_______________________________ Name: Title: ___________________________________ Andrew Goldfarb, Co Trustee for the Andrew and Denise Goldfarb Revocable Trust of 1995 ___________________________________ Denise Goldfarb, Co Trustee for the Andrew and Denise Goldfarb Revocable Trust of 1995 ____________________________________ Andrew Goldfarb, Co Trustee for the Andrew and Denise Goldfarb 1996 Unitrust Northern Trust Bank of California N.A., Co Trustee for the Andrew and Denise Goldfarb 1996 Unitrust By: ______________________________ Its: ______________________________ ____________________________________ Christopher Bateman ____________________________________ Linda Rillorta ____________________________________ Steven Goldfarb ____________________________________ Richard Ferraid ____________________________________ Debra Ferraid ____________________________________ Steven Goldfarb, as Trustee of the Jessica Anne Goldfarb Irrevocable Trust ____________________________________ Steven Goldfarb, as Trustee of the Rebecca Goldfarb Irrevocable Trust Exhibit A HCC Industries Windward Securities Purchase Term Sheet Buyer Entity Buyer Entities will purchase $32,500,000 of equity Securities Purchase representing an approximately 65% interest in the common stock of the Company. MetLife (and in the case of the associated stock and warrants, Windward/Park), Windward/Merban and Windward/Merchant will purchase (i) 7 year subordinated debt bearing interest at 12% per annum, payable semi-annually in arrears, and (ii) (A) associated common stock of the Company representing 6% of the outstanding shares of Common Stock on the Closing Date, and (B) anti-dilution warrants which shall become exercisable upon vesting of any Management Options and any Performance Options. Such entities may arrange for the purchase of the subordinated debt (and the associated common stock and warrants) by third parties so long as such purchase is on terms no less favorable to the Company. EX-2.2 3 SUBORDINATED NOTE AGREEMENT EXHIBIT 2.2 ================================================================================ HCC INDUSTRIES INC. ------------ SUBORDINATED NOTE AGREEMENT ------------ Dated as of February 14, 1997 ------------ ================================================================================ TABLE OF CONTENTS
Page ---- BACKGROUND................................................... 1 ARTICLE I Definitions....................................... 2 SECTION 1.1. Interpretation........................ 2 SECTION 1.2. Definitions........................... 2 ARTICLE II Successor Company................................ 25 SECTION 2.1. When the Company May Merge or Transfer Assets..................... 25 ARTICLE III Sale of the Notes............................... 26 SECTION 3.1. Sale of the Notes Pursuant to Main Transaction Agreement............... 26 SECTION 3.2. Legend for the Notes.................. 27 SECTION 3.3. Mandatory Repayment of the Notes...... 27 SECTION 3.4. Mandatory Prepayment of the Notes..... 27 SECTION 3.5. Optional Prepayment of the Notes Within 180 Days of Closing.......... 27 SECTION 3.6. Optional Prepayment of the Notes Following Fifth Anniversary of Closing.......................... 28 SECTION 3.7. Optional Prepayment of the Notes Following Public Offering........... 28 SECTION 3.8. Prepayment Right of Holders Upon Change of Control................... 29 SECTION 3.9. Allocation of Prepayments............. 31 SECTION 3.10. Notice of Prepayment of the Notes..... 31 SECTION 3.11 Restrictions on Optional Prepayments.. 31 SECTION 3.12. Method of Payment on the Notes........ 31 ARTICLE IV Covenants........................................ 32 SECTION 4.1. Payment of the Notes.................. 32 SECTION 4.2. Limitation on Debt.................... 32 SECTION 4.3. Limitation on Restricted Payments..... 37 SECTION 4.4. Limitation on Restrictions on Distributions from Subsidiaries of the Company...................... 41
i
Page ---- SECTION 4.5. Limitation on Transactions with Affiliates.......................... 42 SECTION 4.6. Foreign Investment in Real Property Tax Act of 1980..................... 44 SECTION 4.7. Notice of Default..................... 44 SECTION 4.8. Authorizations and Approvals.......... 44 SECTION 4.9. Provision of Periodic Financial Information......................... 44 ARTICLE V Events of Default; Remedies....................... 45 SECTION 5.1. Events of Default..................... 45 SECTION 5.2. Acceleration.......................... 48 SECTION 5.3. Rights and Remedies Cumulative........ 48 SECTION 5.4. Delay or Omission Not Waiver.......... 49 SECTION 5.5. Waiver of Stay or Extension Laws...... 49 SECTION 5.6. Waiver of Past Defaults............... 49 SECTION 5.7. Rights of Holders To Receive Payment.. 50 ARTICLE VI Subordination.................................... 50 SECTION 6.1. Agreement To Subordinate.............. 50 SECTION 6.2. Liquidation, Dissolution, Bankruptcy.. 50 SECTION 6.3. Default on Senior Debt................ 51 SECTION 6.4. Acceleration of Payment of Notes and Exercise of Remedies................ 53 SECTION 6.5. When Distribution Must Be Paid Over... 53 SECTION 6.6. Subrogation........................... 53 SECTION 6.7. Relative Rights....................... 54 SECTION 6.8. Subordination May Not Be Impaired by Company.......................... 55 SECTION 6.9. Reinstatement......................... 55 SECTION 6.10. Proofs of Claim....................... 55 SECTION 6.11. Non-Impairment........................ 55 SECTION 6.12. No Modification....................... 56 SECTION 6.13. Waivers............................... 56 SECTION 6.14. Enforcement of Rights................. 57 ARTICLE VII Transfer of the Notes........................... 57 SECTION 7.1 Restriction on Transfer............... 57
ii
Page ---- SECTION 7.2. Registration of Transfer.............. 57 SECTION 7.3. Register.............................. 58 ARTICLE VIII Termination.................................... 58 SECTION 8.1. Termination........................... 58 SECTION 8.2. Liability............................. 59 ARTICLE IX Amendments....................................... 59 SECTION 9.1. Amendments............................ 59 SECTION 9.2. Revocation and Effect of Consents and Waivers......................... 60 SECTION 9.3. Notation on or Exchange of Notes...... 61 SECTION 9.4. Payment for Consent................... 61 ARTICLE X Miscellaneous..................................... 61 SECTION 10.1. Notices............................... 61 SECTION 10.2 Consent to Payment of Installment Amount.............................. 62 SECTION 10.3. Parties............................... 63 SECTION 10.4. Governing Law......................... 63 SECTION 10.5. Replacement Note...................... 63 SECTION 10.6. Successors and Assigns................ 63 SECTION 10.7. Severability Clause................... 63 SECTION 10.8. Further Assurances.................... 64 SECTION 10.9. Entire Agreement...................... 64 SECTION 10.10. Headings.............................. 64 SECTION 10.11. Counterparts.......................... 64 ARTICLE XI Indemnification.................................. 64 SECTION 11.1. Indemnity of Holders of the Notes by the Company...................... 64
SCHEDULE 1 Purchaser Information EXHIBIT A Form of Note iii SUBORDINATED NOTE AGREEMENT --------------------------- SUBORDINATED NOTE AGREEMENT dated as of February 14, 1997 (this "Agreement"), by and among HCC Industries Inc., a Delaware corporation (the "Company"), Windward/Merchant L.P., a Delaware limited partnership ("Windward/Merchant"), Windward/Merban L.P., a Delaware limited partnership ("Windward/Merban"), and Metropolitan Life Insurance Company, a New York corporation ("Metropolitan Life") (Windward/Merchant, Windward/Merban and Metropolitan Life, each a "Purchaser" and, collectively, the "Purchasers"). BACKGROUND ---------- WHEREAS, pursuant to the First Amendment and Restatement of the Stock Purchase and Sale Agreement, dated as of December 23, 1996 (the "Main Transaction Agreement"), by and among the Company, HCC Windward L.L.C., a Delaware limited liability company ("HCC Windward"), Windward Capital Associates, L.P., a Delaware limited partnership ("Windward"), Windward/Park HCC, L.L.C., a Delaware limited liability company ("Windward/Park"), Windward/Merchant, Windward/Merban (Windward, Windward/Park, Windward/Merchant, and Windward/Merban, collectively, the "Windward Entities"), Metropolitan Life and each of the Sellers party thereto, upon the terms and subject to the conditions set forth therein, among other things, (a) the Company intends to repurchase from the Sellers, and the Sellers intend to sell to the Company, 245,972 shares of common stock, par value $.10 per share, of the Company, and (b) the Company intends to issue to the Windward Entities, and the Windward Entities intend to acquire from the Company, 96,335 shares of Common Stock (as defined in the Main Transaction Agreement) (such shares, representing 67% of the Company's total outstanding capital stock (without giving effect to the exercise of any outstanding options)) and contingent anti-dilution warrants (the "Mezzanine Warrants") to purchase up to 1,461 shares of Common Stock on the terms and conditions set forth therein; and WHEREAS, as part of the closing of the transactions contemplated pursuant to the Main Transaction Agreement and upon the terms and subject to the condi- tions set forth herein and therein, the Company shall issue and sell to the Purchasers $22,500,000 principal amount of its 12% Subordinated Notes Due 2004 (the "Notes"), and the Purchasers shall purchase the Notes from the Company, on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and agreements contained in this Agreement, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: ARTICLE I Definitions ----------- SECTION 1.1. Interpretation. For all purposes of this Agreement and the -------------- Notes, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article and elsewhere in this Agreement include the plural as well as the singular; (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles that are consistently applied, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States as of the Closing Date (as defined herein); and (c) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. SECTION 1.2. Definitions. ----------- "Acquired Debt" means Debt of a Subsidiary of the Company issued and outstanding on or prior to the 2 date on which such Subsidiary was acquired by either the Company or any other Subsidiary of the Company (other than Debt issued as consideration in, or to provide all or any portion of the funds or credit support utilized in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Subsidiary of the Company became a Subsidiary or was acquired by either the Company or any other Subsidiary of the Company). "Affiliate" of any specified Person means (i) any other Person which, directly or indirectly, is in control of, is controlled by or is under common control with such specified Person or (ii) any other Person who is a director or officer (A) of such specified Person, (B) of any Subsidiary of such specified Person or (C) of any Person described in clause (i) above. For purposes of this definition, control of a Person means the direct or indirect power to direct or cause the direction of the management and policies of such Person whether through the ownership of Voting Stock, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent" means, with respect to the Credit Agreement in effect as of the Closing Date, Fleet Capital Corporation (or any successor as agent under the Credit Agreement in effect as of the Closing Date) as agent for the Banks, and, with respect to any agreement issued as a renewal, refinancing or replacement thereof, any agent or trustee under such renewal, refinancing or replacement agreement. "Agreement" means this Subordinated Note Agreement among the Company and the Purchasers and all schedules and Exhibits attached hereto. "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) of shares of Capital Stock of a Subsidiary of the Company, property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by any of the Company's Subsidiaries to 3 the Company or by the Company or any of its Subsidiaries to any of the Company's Wholly Owned Subsidiaries, (ii) a disposition at fair market value (as determined in good faith by the Board of Directors) of obsolete assets in the ordinary course of business and (iii) a disposition subject to Article II (except to the extent the Company disposes of substantially all (but not all) of its assets, in which event the assets not so disposed of shall be deemed as having been sold by the Company). "Average Life" means, as of the date of determination, with respect to any Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled sinking fund, serial maturity or other principal payment of such Debt or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. "Beneficial Owner", and terms having similar import, means any direct or indirect "beneficial owner", as such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act (except that, for purposes of clause (iii) of the definition of "Change of Control", a person shall be deemed to have "Beneficial Ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time). The Permitted Holders shall be deemed to Beneficially Own all the Voting Stock of a corporation held by any other corporation (such other corporation, the "parent corporation") so long as the Permitted Holders Beneficially Own, directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent corporation. "Board of Directors" means, with respect to any Person, such Person's Board of Directors or any committee thereof duly authorized to act on behalf of such Board of Directors. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of 4 the Company, depending upon the context in which such term is used, to have been duly adopted by such Board of Directors of the Company and to be in full force and effect on the date of such certification and delivered to the Purchasers. "Business Day" means each day which is not a Saturday or Sunday or a day on which banking institutions are not required to be open in the State of New York. "Capital Lease Obligations" means, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with generally accepted accounting principles, either would be required to be classified and accounted for as a capital lease (a "Capital Lease") on a balance sheet of such Person or otherwise be disclosed as such in a note to such balance sheet; the amount of such obligation shall be the capitalized amount thereof, determined in accordance with generally accepted accounting principles; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, contingent share issuances, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into or exchangeable for such equity. "Change of Control" means the occurrence of any of the following events: (i) prior to the first Public Equity Offering of the Company, the Permitted Holders cease to be the Beneficial Owners of a majority in the aggregate of the total voting power of the Voting Stock of the Company, whether as a result of an issuance of securities of the Company, any merger, consolidation, liquidation or dissolution of the Company, any direct or indirect transfer of securities or otherwise; or 5 (ii) prior to the first Public Equity Offering of the Company, any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than a "person" or "group" consisting of one or more Permitted Holders, is or becomes the Beneficial Owner of Voting Stock which represents a percentage of the total voting power of the Voting Stock of the Company which is greater than that percentage of the total voting power of the Voting Stock of the Company which the Investor Group in the aggregate Beneficially Owns; provided that at such time the Investor Group -------- does not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Company; and provided further that the provisions of this clause (ii) -------- ------- shall only constitute a "Change of Control" in the event that those Investor Holders (as defined below) which hold a majority in principal amount of all Notes which are held by Investor Holders, deliver notice to the Company that they deem a Change of Control to have occurred pursuant to this clause (ii) (for purposes of this definition of "Change of Control", the term "Investor Holders" shall mean those Holders which are members of the Investor Group); or (iii) after the first Public Equity Offering of the Company, any "person" or "group" (as defined in clause (ii) above), other than a "person" or "group" consisting of one or more Permitted Holders, is or becomes the Beneficial Owner of Voting Stock which represents a percentage of the total voting power of the Voting Stock of the Company which is (A) greater than twenty five percent (25%) or more of the total voting power of the Voting Stock of the Company and (B) greater than that percentage of the total voting power of the Voting Stock of the Company which the Permitted Holders in the aggregate Beneficially Own; provided that at such time the -------- Permitted Holders do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Company; or (iv) after the first Public Equity Offering of the Company, during any one-year period, individuals 6 who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; provided that no Change of Control shall be deemed to have occurred solely as a - -------- result of the Stockholders Agreement. "Closing" and "Closing Date" shall have the same respective meanings as set forth in the Main Transaction Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated EBITDA Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending at least 45 days prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters; provided that, and without duplication, (A) if the -------- Company or any of its Restricted Subsidiaries has issued any Debt since the beginning of such period that remains outstanding (other than Debt issued under a revolving credit or similar arrangement for working capital purposes or for capital improvement purposes) on the last day of such period or if the transaction giving rise to the need to calculate the Consolidated EBITDA Coverage Ratio is an issuance of Debt, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Debt as if such Debt had been issued on the first day of such period; (B) if since the beginning of such period the Company or any of its Restricted Subsidiaries shall have made any Asset Disposition, (x) the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such peri- 7 od, or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and (y) Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Debt of the Company or any of its Restricted Subsidiaries repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Dispositions for such period (or, if the Capital Stock of any of the Company's Restricted Subsidiaries is sold, the Consolidated Interest Expense for such period directly attributable to the Debt of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Debt after such sale); (C) if since the beginning of such period the Company or any of its Restricted Subsidiaries (by merger or otherwise) shall have made an Investment in any of the Company's Subsidiaries (or any person which becomes a Subsidiary of the Company) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the issuance of any Debt, but without regard to clause (ii) of the proviso to the definition of "Consolidated Net Income") as if such Investment or acquisition occurred on the first day of such period; (D) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary of the Company or was merged with or into the Company or any of its Restricted Subsidiaries since the beginning of such period) shall have made any Asset Disposition or any Investment that would have required an adjustment pursuant to clause (B) or (C) above if made by the Company or any of its Restricted Subsidiaries during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition or Investment occurred on the first day of such period; (E) there shall be excluded from Consolidated Interest Expense any Consolidated Interest Expense related to any amount of Debt that was outstanding during such four-fiscal-quarter period or thereafter but that is not outstanding or is to be repaid on the date of determination, except for Consolidated Interest Expense ac- 8 crued during such four-fiscal-quarter period under a revolving credit or similar arrangement; and (F) with respect to any such four-fiscal-quarter period commencing prior to the Recapitalization, the Recapitalization shall be deemed to have taken place on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, and the amount of Consolidated Interest Expense associated with any Debt issued in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company, which determination shall, if the Holders of a majority of the principal amount in the Notes so request, be confirmed by the independent accountants of the Company. If any Debt bears a floating rate of interest and is being given pro forma effect, the interest on such Debt shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Debt if such Interest Rate Agreement has a remaining term in excess of twelve months). "Consolidated Income Tax Expense" means, for any period, the consolidated provision for income taxes of the Company and its consolidated Restricted Subsidiaries for such period determined in accordance with generally accepted accounting principles. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles, including (i) interest expense attributable to capital leases, (ii) capitalized interest to the extent actually paid, (iii) non-cash interest expense, (iv) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (v) interest actually paid by the Company or any such Restricted Subsidiary under any guarantee of Debt or other obligation of any other Person, (vi) net costs under Interest Rate Agreements (including amortization of fees), (vii) Preferred Stock dividends in respect of all Preferred Stock of the Company's Restricted Subsidiaries and Redeemable Stock of the Company held by Persons other than the Company or a 9 Wholly Owned Subsidiary of the Company and (viii) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company and its consolidated Subsidiaries) in connection with loans incurred by such plan or trust to purchase newly issued or treasury shares of the Company; provided that non-cash interest expense accrued on unpaid dividends -------- applicable to the Company's Preferred Stock shall be excluded from the calculation of Consolidated Interest Expense; provided further that the -------- ------- calculation of Consolidated Interest Expense shall exclude (x) any amount of interest expense of any Restricted Subsidiary of the Company if the net income (or loss) of such Restricted Subsidiary is excluded in the calculation of Consolidated Net Income pursuant to clauses (i) or (iii) of the definition thereof (but only in the same proportion as the net income (or loss) of such Restricted Subsidiary is excluded from the calculation of Consolidated Net Income pursuant to clauses (i) or (iii) of the definition thereof) and (y) any premiums, fees and expenses (and any amortization thereof) payable in connection with the Recapitalization, all as determined on a consolidated basis in conformity with generally accepted accounting principles. "Consolidated Net Income" means, for any period, the aggregate net income (or loss) of the Company and its consolidated Restricted Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles (other than any net income (or loss) of any Unrestricted Subsidiary); provided that there shall not be included in such Consolidated Net -------- Income (without duplication): (i) any net income (or loss) of any Person if such Person is not a Restricted Subsidiary of the Company, except that the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary of the Company as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary of the Company, to the limitations contained in clause (iii) below); provided that such -------- 10 limitation shall not apply to equity income in respect of investments outstanding as of the Closing Date; (ii) solely for the purposes of calculating the amount of Restricted Payments that may be made pursuant to Section 4.3 hereof, any net income (or loss) of any Person acquired by the Company or a Restricted Subsidiary of the Company in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Restricted Subsidiary of the Company if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company (other than general statutory limitations on the payment or making of such dividends or distributions), except that (A) the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed or available for distribution without restriction by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary of the Company as a dividend or other distribution (subject, in the case of a dividend or other distribution to another Restricted Subsidiary of the Company, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated Restricted Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person; 11 (v) the cumulative effect of a change in accounting principles; (vi) any extraordinary gains and extraordinary losses; (vii) any charges, expenses and amortizations which are accelerated by reason of the payment prior to the maturity thereof of any Debt; (viii) any fees or expenses (and any amortization thereof) incurred in connection with, or payable prior to or substantially concurrently with the closing of the Recapitalization (including, without limitation, any fees or expenses related to the financing thereof, any fees or expenses of attorneys, accountants, financial advisors, consultants and other similar persons incurred in connection therewith and any other such fees and expenses relating thereto); and (ix) any non-cash charges reducing the net income of the Company or any Restricted Subsidiary that relate to the issuance, granting or modification of Capital Stock, stock options, stock appreciation rights or any other similar rights to the directors, officers or employees of the Company or any of its Restricted Subsidiaries, and any cash payments reducing net income of the Company or any of its Restricted Subsidiaries that relate to stock options, stock appreciation rights or any other similar rights, to the extent such cash payments do not come within any of the Restricted Payment exceptions set forth in Section 4.3(b) hereof. In computing Consolidated Net Income of the Company, (1) the Company shall use audited financial statements for the portions of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of the Company for the remaining portion of such period and (2) the Company shall be permitted to rely in good faith on the financial statements and other financial data derived from the books and records of the Company that are available on the date of determination. 12 "Consolidated Net Worth" of any Person means the total of the amounts shown on the balance sheet of such Person and its consolidated Subsidiaries, determined on a consolidated basis in accordance with generally accepted accounting principles, as of the end of the most recent fiscal quarter of such Person ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of such Person, plus (ii) paid-in capital or capital surplus relating to such Capital Stock, plus (iii) any retained earnings or earned surplus, less (A) any accumulated deficit, less (B) any amounts attributable to Redeemable Stock and less (C) any amounts attributable to Exchangeable Stock. "Contingent Payment Notes" has the meaning given in the Main Transaction Agreement. "Credit Agreement" means the Credit Agreement dated as of February 14, 1997 among the Company, each financial institution which is a party thereto (collectively, the "Banks"), and Fleet Capital Corporation, as agent for the Banks, as in effect at the Closing, and as the same may be amended or extended without increasing the principal amount thereof (except as permitted by Section 4.2(b)(ii) hereof) and as the same may be renewed, refinanced or replaced. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary. "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. "Debt" of any Person means, without duplication, (i) the principal of, premium (if any) and interest and related fees and expenses (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for 13 the payment of which such Person is responsible or liable; (ii) all Capital Lease Obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement; (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (v) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Redeemable Stock (but excluding, in each case, any accrued dividends); (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including any guarantees of such obligations and dividends, but, in each case, only to the extent such Person is responsible or liable for such obligations or dividends; (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (viii) to the extent not otherwise included in this definition, Hedging Obligations of such Person. Notwithstanding any of the foregoing provisions of this definition of "Debt", (1) the amount outstanding at any time of any Debt issued with original issue discount is 14 the face amount of such Debt less the remaining unamortized portion of the original issue discount of such Debt at such time as determined in conformity with generally accepted accounting principles, and (2) Debt shall not include (A) any liability for federal, state, local or other taxes, (B) trade accounts payable and other accrued expenses arising in the ordinary course of business, (C) with respect to the deferred purchase price of property, obligations which are due within six months after the date of placing such property in service or taking delivery and title thereto, (D) any obligations of the Company or its Subsidiaries with respect to the Deferred Payment Amount, or (E) any obligations of the Company or its Subsidiaries with respect to the Installment Amount. The amount of Debt of any Person at any date shall be (x) the outstanding balance at such date of all unconditional obligations as described above, and (y) the maximum liability determined by such Person's Board of Directors, in good faith, as reasonably likely to occur, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. For purposes of determining any particular amount of Debt under Section 4.2 hereof, (i) obligations of a Person with respect to letters of credit, guarantees or security interests supporting or relating to any Debt which is otherwise included in the determination of such particular amount shall not be included, (ii) Debt permitted under Section 4.2 hereof need not be permitted solely by reference to one provision permitting such Debt but may be permitted in part by reference to one such provision and in part by reference to one or more other provisions of the covenant permitting such Debt, and (iii) in the event that an item of Debt or portion thereof meets the criteria of more than one of the types of Debt permitted under Section 4.2 hereof, the Company, in its sole discretion, may classify such item of Debt or portion thereof in one of such provisions and only be required to include the amount and type of such Debt or portion thereof in one of such provisions. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Deferred Payment Amount" has the meaning given in the Main Transaction Agreement. 15 "EBITDA" for any period means the Consolidated Net Income for such period (but without giving effect to adjustments, accruals, deductions or entries resulting from gains or losses from any Asset Dispositions), plus the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Income Tax Expense, (ii) Consolidated Interest Expense, (iii) depreciation expense and (iv) amortization expense and other non-cash charges. "Equity Holding Company" means any company of which the Company is a Wholly Owned Subsidiary substantially all of whose assets are comprised of Capital Stock of the Company. "Event of Default" has the meaning specified in Section 5.1 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Exchangeable Stock" means any Capital Stock which is exchangeable or convertible into another security (other than Capital Stock of the Company which is neither Exchangeable Stock or Redeemable Stock). "FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980. "Financial Advisory Services Agreement" means the Financial Advisory Services Agreement, dated of even date herewith, between Windward and the Company. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" means any of the Purchasers or such other Persons in whose name a Note or Notes are registered on the Note Register. "Installment Amount" has the meaning given in the Main Transaction Agreement. "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, inter- 16 est rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is a party or a beneficiary. "Investment" in any Person means any loan or advance to, any guarantee of, any capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any acquisition of any Capital Stock, equity interest, obligation or other security of, such Person. Investments shall exclude advances to customers and suppliers in the ordinary course of business. For purposes of the definition of "Unrestricted Subsidiary" and Section 4.3 hereof, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary of the Company is designated an Unrestricted Subsidiary, and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined by the Board of Directors of the Company in good faith. "Investor Group" means the Windward Entities, Metropolitan Life and each of their Affiliates. "Lien" means any mortgage, pledge, security interest, encumbrance, charge of any kind (including any conditional sale or other title retention agreement) or other similar lien; provided, however, that neither (i) the rights -------- ------- of the Sellers or any other Person in the Deferred Payment Amount nor (ii) the rights of the Sellers, the Escrow Agent (as defined in the Main Transaction Agreement) or any other Person in the Installment Amount shall be considered to be a Lien. "Main Transaction Agreement" has the meaning specified in the first Whereas clause hereof. "Make-Whole Price" means the higher of (1) the unpaid principal amount of the Notes to be prepaid on the 17 Prepayment Date in question (each, a "Determination Date") and (2) the sum of the respective Payment Values (as defined below) of each prospective interest payment and the principal payment at maturity in respect of such Notes, in each case in respect of the principal amount of the Notes so to be prepaid (the amount of each such payment, a "Payment"). The "Payment Value" of each Payment shall be determined by discounting such Payment at the Reinvestment Rate (as defined below), for the period from the scheduled date of such Payment to the related Determination Date. The "Reinvestment Rate" is the sum of (a) (i) with respect to any Purchaser or Mezzanine Security Transferee, (x) if the Mezzanine Return applicable to such Purchaser or Mezzanine Security Transferee as of the Determination Date is less than twenty two percent (22.0%), 2.25% and (y) if the Mezzanine Return applicable to such Purchaser or Mezzanine Security Transferee as of the Determination Date is greater than or equal to twenty two percent (22%), 2.50%, and (ii) with respect to any Holder other than a Purchaser or a Mezzanine Security Transferee, 2.50%, and (b) the yield which shall be imputed from the yields of those actively traded "On The Run" United States Treasury securities having maturities as close as practicable to the Average Life of the Notes so to be prepaid, shown on page "USD" of the Bloomberg Financial Markets Services Screen as of 10 A.M. Eastern Time on the fifth Business Day prior to the related Determination Date. "Mezzanine Return" means, with respect to any Purchaser or Mezzanine Security Transferee, the overall internal rate of return, compounded semi- annually, as of the date of determination on all Mezzanine Security Units purchased by such Purchaser on the Closing Date or thereafter purchased by such Mezzanine Security Transferee, as calculated by the Company. For purposes of determining the Mezzanine Return, the overall internal rate of return shall be computed on the basis of semi-annual compounding and measured from the Closing Date until the date of determination and (a)the purchase price paid by such Purchaser on the Closing Date for Notes shall be treated as an outflow on the Closing Date, (b) the purchase price paid by such Purchaser on the Closing Date for Mezzanine Shares shall be treated as an outflow on the Closing Date, (c) any distributions received by such Purchaser with respect to Mezzanine Shares prior to the date of determination shall be treated as inflows on the respec- 18 tive dates of such distributions, (d) any consideration received by such Purchaser prior to the date of determination as a result of the sale of any Mezzanine Shares shall be treated as inflows on the respective dates of receipt of such consideration, (e) any interest payments on the Notes received by such Purchaser prior to the date of determination shall be treated as inflows on the respective dates of payment, (f) any payments of principal of, or premium on, any Notes made by the Company prior to the date of determination shall be treated as inflows on the respective dates of such payments, (g) all Notes held by the Purchaser on the date of determination shall be treated as if they were sold on such date at a purchase price equal to the outstanding principal amount of such Notes plus accrued but unpaid interest, if any, and (h) all Mezzanine Shares held by the Purchaser on the date of determination shall be treated as if they were sold on such date at a purchase price per share calculated as follows: (x) if (I) the calculation of the Mezzanine Return is being performed pursuant to Section 3.5 or (II) the calculation of Make-Whole Price is being performed pursuant to Section 3.6 in connection with a Public Equity Offering of Capital Stock (other than Common Stock) of the Company or any Equity Holding Company, at a price equal to the product of (1) 6.5 times (2) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending at least 45 days prior to the date of such determination divided by (3) aggregate number of outstanding shares of Common Stock of the Company on the date of such determination, after giving effect to the issuance of all shares of Common Stock issuable (A) upon conversion of all convertible securities outstanding at such time and of all convertible securities issuable upon the exercise of any warrants, options and other rights outstanding on such date and (B) upon exercise of all other warrants, options and other rights outstanding on such date; (y) if the calculation of Make-Whole Price is being performed pursuant to Section 3.6 in connection with a Public Equity Offering of shares of Common Stock of the Company or any Equity Holding Company, at a price equal to the price per share at which shares of Common Stock of the Company were sold in the relevant Public Equity Offering; and (z) if the calculation of Mezzanine Return is being performed pursuant to Section 3.7, at a price equal to (1) if all of the consideration paid in the transaction resulting in such Change of Control is cash, the price per share of 19 Common Stock paid in such transaction and (2) if any of the consideration paid in the transaction resulting in such Change of Control is other than cash, the value per share of Common Stock of such consideration as determined in good faith by the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution; provided that, if any Purchaser transfers one -------- or more of its Mezzanine Security Units to a Mezzanine Security Transferee (or any Mezzanine Security Transferee transfers one or more of its Mezzanine Security Units to a subsequent Mezzanine Security Transferee), the Mezzanine Return applicable to such Mezzanine Security Transferee shall be calculated based on all of the Mezzanine Security Units held by such Mezzanine Security Transferee on the date it became a Mezzanine Security Transferee and all inflows and outflows described above attributable to the original Purchaser of such Mezzanine Security Unit(s) (and to any Mezzanine Security Transferee who previously held such Mezzanine Security Unit(s)) shall be included in the calculation of such Mezzanine Security Transferee's Mezzanine Return, and provided further, that any amounts paid by such Mezzanine Security Transferee - -------- ------- to the original Purchaser (or any prior Mezzanine Security Transferee) in respect of such Mezzanine Security Unit shall be disregarded for purposes of the calculation of such Mezzanine Security Transferee's Mezzanine Return. "Mezzanine Security Transferee" has the meaning specified in Section 3.5 hereof. "Mezzanine Security Unit" means a unit comprised of $1000 principal amount of Notes, .38284 Mezzanine Shares (and any shares of Common Stock of the Company or any Equity Holding Company into which such initial .38284 Mezzanine Shares shall have been converted or for which such initial .38284 Mezzanine Shares shall have been exchanged) and .06493 Mezzanine Warrants (or such number of Mezzanine Shares issued pursuant to the exercise of such .06493 Mezzanine Warrants). "Mezzanine Shares" means (i) with respect to Windward/Merchant, 156.61818 shares of Common Stock of the Company purchased by Windward/Merchant on the Closing Date pursuant to the Main Transaction Agreement; (ii) with respect to Windward/Merban, the 626.47273 shares of Common Stock of the Company purchased by Windward/Merban on the Closing Date pursuant to the Main Transaction 20 Agreement; (iii) with respect to Metropolitan Life, the 7,830.90909 shares of Common Stock of the Company purchased by Windward/Park on the Closing Date pursuant to the Main Transaction Agreement; and (iv) with respect to any Mezzanine Security Transferee, the shares of Common Stock of the Company comprising the Mezzanine Security Units purchased or received by such Mezzanine Security Transferee, and, in each case, any shares of Common Stock of the Company or any Equity Holding Company into which the initial Mezzanine Shares shall have been converted or for which the initial Mezzanine Shares shall have been exchanged and any shares of Common Stock of the Company or any Equity Holding Company issued pursuant to the Mezzanine Warrants; provided that, for purposes of calculating the Mezzanine Return, if any of Windward/Merchant, Windward/Merban or Windward/Park holds a number of shares of Common Stock of the Company in excess of the numbers set forth in this definition (after giving effect to any conversion, exchange or issuance referred to above) and such Windward Entity sells a portion of its shares of Common Stock of the Company, all of the shares sold by such Windward Entity shall be deemed to be Mezzanine Shares until such Windward Entity has sold a number of shares of Common Stock of the Company equal to all of its Mezzanine Shares (after giving effect to any conversion, exchange or issuance referred to above). "Mezzanine Warrants" has the meaning specified in the first Whereas clause hereof. "Net Cash Proceeds" means, with respect to any issuance or sale of Capital Stock of the Company, the cash proceeds of such issuance or sale of Capital Stock, net of any underwriters' or placement agents' fees, discounts or commissions related to such issuance or sale. "Non-Convertible Capital Stock" means, with respect to any corporation, any non-convertible Capital Stock of such corporation and any Capital Stock of such corporation convertible solely into non-convertible Capital Stock of such corporation; provided that Non-Convertible Capital Stock -------- shall not include any Redeemable Stock or Exchangeable Stock. "Non-Monetary Default Blockage Period" has the meaning specified in Section 6.3 hereof. 21 "Non-Recourse Debt" means, with respect to any Person, Debt of such Person to the extent that, if such Person fails to pay such Debt when due and the holder thereof obtains a judgment with respect thereto, the holder may not collect by levy of execution against any general assets of such Person other than assets securing such Debt; provided, however, that Debt shall not fail to -------- constitute Non-Recourse Debt by reason of (i) provisions giving recourse to, or rights against, such Person or any assets thereof upon the happening of certain specified events, including, without limitation, intentional misrepresentation, regulatory noncompliance or violation of law, or (ii) any rights the holder thereof may have under bankruptcy, insolvency, receivership or other proceedings including by reason of Section 1111(b) of the Federal Bankruptcy Code. "Note Register" means the register maintained pursuant to Section 7.2 hereof. "Notes" means the $22,500,000 principal amount of the Company's 12% Subordinated Notes Due 2004 to be purchased by the Purchasers from the Company pursuant to this Agreement. "Note" means all or a part of the Notes. "Officer" means the Chairman of the Board, the President, the Chief Financial Officer, any Vice President, the Treasurer or the Secretary of the Company, depending upon the context in which such term is used. "Pari Passu", as applied to the ranking of any Debt of a Person in relation to other Debt of such Person, means that each such Debt either (i) is not subordinated in right of payment to any Debt or (ii) is subordinated in right of payment to the same Debt as is the other, and is so subordinated to the same extent, and is not subordinated in right of payment to such other Debt or to any Debt as to which the other is not so subordinated. "Payment Default Blockage Period" has the meaning specified in Section 6.3 hereof. "Permitted Holders" means the Investor Group and any Permitted Transferees (as defined in the Stockholders Agreement) thereof. 22 "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Prepayment Date" has the meaning specified in Section 3.10 hereof. "Public Equity Offering" means an underwritten primary, or combined primary and secondary, public offering of Capital Stock (other than Redeemable Stock) of the Company (or any entity of which the Company is a Subsidiary, to the extent the cash proceeds of such offering are contributed to the Company or used to acquire Capital Stock (other than Redeemable Stock) of the Company) pursuant to an effective registration statement under the Securities Act, and any similar private placement of securities effected substantially concurrently with any such offering. "Purchasers" has the meaning specified in the first paragraph of this Agreement. "Put Purchase Price" has the meaning specified in Section 3.8(a) hereof. "Recapitalization" means the transaction contemplated by the Main Transaction Agreement. "Redeemable Stock" means any Capital Stock that by its terms or otherwise is required to be redeemed on or prior to the first anniversary of the Stated Maturity of the Notes or is redeemable at the option of the holder thereof at any time on or prior to the first anniversary of the Stated Maturity of the Notes. "Restricted Payment" has the meaning specified in Section 4.3(a) hereof. 23 "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Secured Debt" means any Debt of the Company or any Restricted Subsidiary secured by a Lien on any asset of the Company or any Restricted Subsidiary. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Senior Debt" means any Debt of the Company and its Subsidiaries to any Person under the Credit Agreement and each note, guaranty, security agreement or other loan document executed and delivered by the Company or any Subsidiary of the Company pursuant to the terms of the Credit Agreement, including without limitation, any principal, interest (whether accrued prior to or after the commencement of any insolvency proceeding under any Bankruptcy Law and whether or not allowed in such proceeding), obligations with respect to letters of credit and letter of credit guarantees, and all reimbursement and indemnification obligations thereunder (whether or not matured, unmatured, liquidated or contingent) of the Company or any of its Subsidiaries and any Debt of the Company and its Subsidiaries to any Person under any Interest Rate Agreements required under Section 7.12 of the Credit Agreement. "Significant Subsidiary" is defined to mean, at any date of determination, any Subsidiary of the Company that, together with its Subsidiaries, (i) for the most recent fiscal year of the Company, accounted for more than ten percent (10%) of the consolidated revenues of the Company or (ii) as of the end of such fiscal year, was the owner of more than ten percent (10%) of the consolidated assets of the Company, all as set forth on the most recently available consolidated financial statements of the Company for such fiscal year. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which all of the outstanding principal of such security is due and payable, including pursuant to any mandatory redemption provision. 24 "Stockholders Agreement" means that certain Stockholders Agreement (including the Schedules and Exhibits attached thereto), dated of even date herewith, among the Company, Windward, Windward/Park, Windward/Merchant, Windward/Merban and the other Stockholders party thereto as such agreement may be amended, supplemented or otherwise modified from time to time after the date hereof. "Subordinated Obligation" means any Debt of the Company (whether outstanding on the date hereof or hereafter incurred) which is subordinate or junior in right of payment to the Notes. "Subsidiary" means, with respect to any Person, a corporation or other entity (including a partnership) of which a majority of the Capital Stock or other voting interests having voting power under ordinary circumstances to elect a majority of the board of directors or otherwise control such Person is owned by (i) such Person, (ii) such Person and one or more of its Subsidiaries or (iii) one or more Subsidiaries of such Person. "Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of the Company in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly-acquired or newly-formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that either (A) the Subsidiary to be so designated has total assets of - -------- $10,000 or less or (B) if such Subsidiary has assets greater than $10,000, that such designation would be permitted under Section 4.3 hereof. The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that immediately after giving -------- effect to such designation (x) the Company could issue $1.00 of additional Debt under Section 4.2(a) hereof and (y) no Default or Event of Default shall have occurred and be continuing. Any Subsidiary of the Company may be desig- 25 nated as an Unrestricted Subsidiary (or not so designated) for purposes of this Agreement without regard to whether such Subsidiary is so designated (or not so designated) for purposes of any other agreement relating to Debt of the Company or any of its Subsidiaries. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly Owned Subsidiary" means, with respect to any Person, a Subsidiary of such Person all the Capital Stock of which (other than directors' qualifying shares) is owned by such Person or another Wholly Owned Subsidiary of such Person. "Windward Entities" has the meaning specified in the first Whereas clause hereof. ARTICLE II Successor Company ----------------- SECTION 2.1. When the Company May Merge or Transfer Assets. (a) The --------------------------------------------- Company shall not consolidate with or merge with or into, or convey or transfer or lease all or substantially all of its assets to, another Person unless (i) the resulting, surviving or transferee Person (if not the Company) shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia and such entity shall assume in writing in form satisfactory to the Holders of the Notes all the obligations of the Company under the Notes and this Agreement, (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing and either (A) the Company is able to incur at least $1.00 of additional Debt pursuant to Section 4.2(a) hereof or (B) the resulting, surviving or transferee Person shall have Consolidated Net Worth in an amount which is not less than the result of (x) the Consolidated Net Worth of the Company immediately prior to such transaction, minus (y) the aggregate amount of Restricted Payments which could have been made by the Company pursuant to Section 4.3(a) hereof immediately prior to such 26 transaction, but which are not being made as part of such transaction, and (iii) the Company shall have delivered to the Holders a certificate of an Officer of the Company stating that such consolidation, merger or transfer complies with this Agreement. (b) Notwithstanding the provisions of Section 2.1(a), (i) any Subsidiary of the Company with a positive net worth may consolidate with, merge into or transfer all or part of its properties and assets to the Company; provided that, in connection with any such transaction, no consideration (other - -------- than common stock in the surviving Person or the Company) shall be issued or distributed to the stockholders of the Company, and (ii) the provisions of clause (ii) of Section 2.1(a) above shall not apply if, in the good faith determination of the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company. ARTICLE III Sale of the Notes ----------------- SECTION 3.1. Sale of the Notes Pursuant to Main Transaction ---------------------------------------------- Agreement. Each of the parties hereto acknowledges and agrees that, upon the terms and subject to the conditions set forth in the Main Transaction Agreement, the Company shall issue and sell to each Purchaser, and each Purchaser shall, severally and not jointly, purchase from the Company, that amount of the Notes set forth opposite such Purchaser's name in Column 4 of Schedule 1, at the purchase price set forth in Column 5 of Schedule 1. The Company and the Purchasers shall not take any position on any tax return based on the purchase prices for the Notes that is inconsistent with any of the purchase prices set forth in Schedule 1. At the Closing, upon the terms and subject to the conditions set forth in the Main Transaction Agreement, the Company shall deliver to each of the Purchasers the Note or Notes purchased by such Purchaser, registered in the name of such Purchaser and bearing the legend set forth in Section 3.2, against payment by such Purchaser of the purchase price therefor by wire transfer of immediately available funds. 27 SECTION 3.2. Legend for the Notes. The certificates representing -------------------- the Notes will bear a legend reading substantially as follows: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). NO SALE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE (OTHER THAN TO THE ISSUER THEREOF) MAY BE MADE UNLESS EITHER (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (B) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. SECTION 3.3. Mandatory Repayment of the Notes. The aggregate -------------------------------- principal amount of the Notes (including all interest and other amounts owed thereon at such time) shall be paid in full by the Company on April 15, 2004. SECTION 3.4. Optional Prepayment of the Notes Within 180 Days of --------------------------------------------------- Closing. Subject to the provisions of Article VIII hereof, the Company may, at - ------- any time on or prior to the date which is 180 days after the Closing Date, prepay the Notes at any time in whole, but not in part, at a redemption price of 100% of the purchase price of the Notes being prepaid, together with accrued but unpaid interest, if any; provided that the Company may only prepay the Notes -------- pursuant to this Section 3.4 if the Company, concurrently therewith, also repurchases all Mezzanine Shares (including any shares of Common Stock issued upon the exercise of the Mezzanine Warrants) and all unexercised Mezzanine Warrants, all in accordance with the terms of Section 7.3 of the Main Transaction Agreement. SECTION 3.5. Optional Prepayment of the Notes Following Fifth ------------------------------------------------ Anniversary of Closing. Subject to the provisions of Article VIII hereof, the - ---------------------- Company may, at any time after the fifth anniversary of the date hereof, prepay the Notes at any time in whole or from time to time in part (any such partial prepayment to be made pro rata amongst the Holders, and in a minimum aggregate -------- amount of $1,000,000), at the redemption prices (expressed as percentages of the principal amount of the Notes being prepaid) set forth below, plus interest accrued thereon (if any) to the Prepayment Date: 28 if the relevant Holder is a Purchaser or is a subsequent Holder who has purchased one or more entire Mezzanine Security Units (such subsequent Holder, a "Mezzanine Security Transferee") and the Mezzanine Return applicable to such Purchaser or Mezzanine Security Transferee as of the Prepayment Date is less than 22%, if redeemed during the 12-month period commencing February 14 of the years set forth below:
Year Redemption Price ---- ---------------- 2002 110% 2003 105% 2004 100%
if (i) the relevant Holder is not a Purchaser or a Mezzanine Security Transferee or (ii) the relevant Holder is a Purchaser or a Mezzanine Security Transferee and the Mezzanine Return applicable to such Purchaser or Mezzanine Security Transferee as of the Prepayment Date is greater than or equal to 22%, if redeemed during the 12-month period commencing February 14 of the years set forth below:
Year Redemption Price ---- ---------------- 2002 105% 2003 102.5% 2004 100%
SECTION 3.6. Optional Prepayment of the Notes Following Public ------------------------------------------------- Offering. Subject to the provisions of Article VIII hereof, the Company may, at - -------- any time following the date hereof and up until the fifth anniversary of the date hereof, prepay the Notes, either in whole or in part (any such partial prepayment to be made pro rata amongst the Holders, and in a minimum aggregate --- ---- amount of $1,000,000), with the Net Cash Proceeds of any Public Equity Offering at the IPO Redemption Value (as defined below). The term "IPO Redemption Value" shall mean (i) with respect to the first thirty percent (30%) of the principal amount of the Notes being redeemed, at a redemption price (expressed as a percentage of the principal amount of the Notes being prepaid) equal to 107%, plus accrued interest, if any, to the Prepayment Date and (ii) with respect to the remaining seventy percent (70%) of the principal amount of the Notes being redeemed, at a redemption price equal to the greater of (A) a redemption 29 price (expressed as a percentage of the principal amount of the Notes being prepaid) equal to 107%, plus accrued interest, if any, to the Prepayment Date, and (B) the Make-Whole Price of such Notes, together with accrued interest, if any, to the Prepayment Date. SECTION 3.7. Prepayment Right of Holders Upon Change of Control. (a) -------------------------------------------------- The Company covenants and agrees that, promptly after the occurrence of a Change of Control but in any event within ten (10) days thereafter, it shall give written notice thereof to each Holder of a Note. Such notice shall (a) describe in reasonable detail the facts and circumstances giving rise to such Change of Control and the effect thereof on the Company, (b) offer to purchase on a date (the "Change of Control Prepayment Date") which shall be not less than thirty (30) days nor more than sixty (60) days after the date of such notice, all of the Notes held by such Holders, (c) request each such Holder to notify the Company in writing, not less than ten (10) days prior to the Change of Control Prepayment Date, of its acceptance or rejection of such offer and (d) inform each such Holder that, upon its receipt of such notice by the Company, failure to reject such offer in writing on or before the tenth day prior to the Change of Control Prepayment Date shall be deemed acceptance of such offer. In the event that the Holders of eighty-five percent (85%) of the outstanding principal amount of the Notes accept or fail to reject the prepayment offer, the Company may, but shall not be obligated to, require the remaining Holders to sell all Notes held by them to the Company as set forth in the prepayment offer and will notify the remaining Holders of such compelled sale not less than five Business Days prior to the Change of Control Prepayment Date. The Company covenants and agrees that it will on the Change of Control Prepayment Date prepay all of the Notes held by each Holder who has accepted the prepayment offer and each Holder who has been compelled to accept the prepay ment offer in accordance with this Section 3.7, by payment of an amount equal to (i) with respect to any Purchaser, (x) if the Mezzanine Return applicable to such Purchaser or Mezzanine Security Transferee as of the date of the Change of Control is less than twenty two percent (22.0%), 103.5% of the principal amount of the Notes being prepaid, and (y) if the Mezzanine Return applicable to such Purchaser or Mezzanine Security Transferee as of the date of the Change of Control is greater than or 30 equal to twenty two percent (22%), 100% of the principal amount of the Notes being prepaid, and (ii) with respect to any Holder other than a Purchaser or a Mezzanine Security Transferee, 100% of the principal amount of the Notes being prepaid (each of (i)(x), (i)(y) and (ii), the "Put Purchase Price") together with interest accrued thereon (if any) to the Change of Control Prepayment Date. (b) On the Change of Control Prepayment Date, all Notes purchased by the Company under this Section 3.8 shall be canceled, and the Company shall pay the Put Purchase Price plus accrued and unpaid interest, if any, to the Holders entitled thereto. The Company shall comply with Rule 14e-1 under the Exchange Act (or any successor provision thereof) and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in the event that a Change of Control occurs under this Section 3.7 and the Company is required to repurchase the Notes as described above; provided that, -------- notwithstanding anything to the contrary contained in this Section 3.7, the Company may modify any of the foregoing provisions of this Section 3.7 to the extent it is advised by independent counsel that such modification is necessary or appropriate in order to ensure any such compliance. (c) If any event or circumstance has occurred which would, except for the provision of notice by the requisite number of Investor Holders, constitute a Change of Control pursuant to clause (ii) of the definition of "Change of Control", the Company shall, promptly after the occurrence of such event or circumstance but in any event within twenty (20) days thereafter, give written notice thereof to each Holder of a Note. SECTION 3.8. Allocation of Prepayments. In the event of any ------------------------- prepayment of less than all of the outstanding Notes pursuant to Sections 3.5 or 3.6 hereof, the Company will allocate the principal amount so to be prepaid (but only in units of $1,000) among the Holders of Notes in proportion, as nearly as may be, to the respective unpaid principal amounts of the Notes held by them. 31 SECTION 3.9. Notice of Prepayment of the Notes. In the event that --------------------------------- the Company intends to effect any prepayment pursuant to Sections 3.4, 3.5 or 3.6 hereof, the Company shall notify the Holders of the Notes being prepaid of any date set for prepayment (each, a "Prepayment Date") at least five (5) Business Days but not more than thirty (30) days prior to such Prepayment Date. Once notice of prepayment of a Note is sent or mailed, such Note shall become due and payable on the Prepayment Date. On the relevant Prepayment Date, such Note shall be paid in full plus interest accrued to the Prepayment Date and any premium required by Section 3.4, 3.5 or 3.6, as applicable, and immediately after such payment, each Holder shall surrender each of its prepaid Notes to the Company. SECTION 3.10. Restrictions on Optional Prepayments. ------------------------------------ Notwithstanding anything in this Agreement to the contrary, the Company may not make any optional prepayment on the Notes, whether pursuant to Section 3.4, 3.5 or 3.6 or otherwise, and whether in whole or in part, if such prepayment would result in a Default (as defined in the Credit Agreement) or an Event of Default (as defined in the Credit Agreement) under the Credit Agreement. SECTION 3.11. Method of Payment on the Notes. The principal of, ------------------------------ premium, if any, and interest on the Notes shall be payable by check in New York Clearing House Funds at the principal office of each of the Holders or, at each Holder's option, by wire transfer in immediately available funds to the account or accounts previously designated in writing by each of the Holders at least three (3) Business Days prior to the due date. ARTICLE IV Covenants --------- The Company covenants and agrees with each of the Holders as follows: SECTION 4.1. Payment of the Notes. (a) The Company shall promptly -------------------- pay the principal of and interest on the Notes on the date and in the manner provided herein and in the Notes. 32 (b) The Company shall pay interest on overdue principal of and on overdue installments of interest on the Notes in the manner provided in the Notes. SECTION 4.2. Limitation on Debt. (a) The Company shall not, and ------------------ shall not permit any of its Restricted Subsidiaries to, issue, directly or indirectly, any Debt unless, after giving effect to the issuance of such Debt and the receipt and application of the proceeds therefrom, the Consolidated EBITDA Coverage Ratio exceeds the ratio indicated below for Debt issued in each period indicated.
Period Ratio ------ ----- February 14, 1997 through December 31, 1998 1.90 January 1, 1999 through December 31, 1999 2.38 January 1, 2000 through December 31, 2000 2.61 on and after January 1, 2001 2.85
If the Company or any of its Restricted Subsidiaries proposes to issue Debt pursuant to this Section 4.2(a), it shall furnish to the Holders of the Notes at least five days prior to such issuance a calculation in reasonable detail, certified by the chief financial officer, treasurer or controller of the Company, demonstrating compliance with this Section 4.2(a). (b) Notwithstanding Section 4.2(a), but subject to Section 4.2(c), the Company and any of its Restricted Subsidiaries may issue the following Debt: (i) Debt issued pursuant to the Credit Agreement, Debt under the Interest Rate Agreements required under Section 7.12 of the Credit Agreement, Debt evidenced by the Notes, the Contingent Payment Notes and the Contingent Payment Bonuses (as defined in the Main Transaction Agreement) and Debt outstanding as of the Closing Date; (ii) Debt issued in exchange for, or the net proceeds of which are used to refund or refinance, any Debt permitted by this Section 4.2 (and any refunding or refinancings thereof); provided that (A) the principal -------- amount of such new Debt (or, if 33 such new Debt provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, the original issue price of such new Debt) so issued, shall not exceed the sum of (x) the aggregate principal amount (plus premiums, accrued interest, fees and expenses and all other amounts payable in connection therewith) of the Debt so exchanged, refunded or refinanced, plus, with respect to refinancings of the Credit Agreement, the aggregate unused commitment thereunder, plus (y) $10,000,000 plus (z) any fees and expenses incurred in connection with the issuance of such new Debt; (B) such new Debt (other than any Debt issued in exchange for, or the net proceeds of which are used to refund or refinance, any Senior Debt) (1) shall not mature prior to the Stated Maturity of the Debt so exchanged, refunded or refinanced (for purposes of this section, prepayment offers required by, and made in accordance with, the terms and conditions of the agreement governing such new Debt upon the occurrence of any "change of control" (as defined in the agreement governing such new Debt) shall not be deemed to effect the Stated Maturity of such new Debt), and (2) shall have an Average Life equal to or greater than the remaining Average Life of the Debt so exchanged, refunded or refinanced; (C) unless such new Debt is Senior Debt, such new Debt shall not expressly prohibit mandatory payments of the Notes or distributions from any Subsidiary of the Company to the Company to permit the Company to make such payments, absent an event of default under the agreement governing such new Debt; and (D) any Debt issued under this subsection in exchange for, or the net proceeds of which are used to refund or refinance, any Non-Recourse Debt must also be Non-Recourse Debt; provided, however, -------- ------- that the foregoing proviso shall not apply to Debt issued to refund, refinance or replace all Notes then outstanding; (iii) Debt owed to and held by a Wholly Owned Subsidiary of the Company, or Debt owed to and held by the Company or any of its Wholly Owned Subsidiaries; provided that any subsequent issuance or transfer of any -------- Capital Stock that results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary of the Company or any subsequent transfer 34 of such Debt (other than to the Company or a Wholly Owned Subsidiary of the Company) shall be deemed, in each case, to constitute the issuance of such Debt by the Company; (iv) Debt (A) incurred in respect of performance, surety or appeal bonds provided in the ordnary course of business, (B) incurred under Hedging Obligations, provided that such agreements do not increase the Debt of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder, and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any Restricted Subsidiary of the Company pursuant to such agreements, in any case issued in connection with the disposition of any business, assets or Restricted Subsidiary of the Company (other than guarantees of Debt issued by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary of the Company for the purpose of financing such acquisition); (v) Debt in respect of letters of credit and bankers' acceptances incurred in the ordinary course of business; (vi) Acquired Debt; (vii) Debt issued to finance, directly or indirectly, capital expenditures of the Company and its Restricted Subsidiaries in an aggregate principal amount, with respect to each fiscal year, not to exceed the amount set forth below with respect to such fiscal year (with each such period being adjusted to correspond to the Borrower's actual fiscal year): 35
Amount Period - ------ ------ $ 500,000 From the Closing Date to March 31, 1997 $3,000,000 FYE March 31, 1998 $3,500,000 FYE March 31, 1999 $4,000,000 FYE March 31, 2000 $4,250,000 FYE March 31, 2001 $4,500,000 FYE March 31, 2002 $5,000,000 FYE March 31, 2003 $5,500,000 FYE March 31, 2004;
provided that the amount of Debt which may be issued in any fiscal year of -------- the Company pursuant to this clause (vii) shall be increased by the amount of Debt (other than refinancing Debt) which could have been issued in the prior fiscal year (including by reason of this proviso) of the Company pursuant to this clause (vii) but which was not so issued; (viii) Debt represented by the obligations of the Company or any of its Restricted Subsidiaries to repurchase shares, or cancel or repurchase options to purchase shares, of the Company's capital stock held by employees of the Company or any of its Restricted Subsidiaries as set forth in the agreements under which such employees purchase or hold shares of the Company's capital stock (as such agreements may be amended), including, without limitation, the Stockholders Agreement; (ix) Non-Recourse Debt in an aggregate principal amount not in excess of $5,000,000; and (x) In addition to the Debt permitted by clauses (i) through (ix) of this Section 4.2(b) and by Section 4.2(a) above, Debt in an aggregate outstanding principal amount which is not at any time in excess of $5,000,000. For purposes of clause (ii), Debt may be incurred in exchange for, or to refund or refinance, operating leases in existence on the date hereof, notwithstanding the fact that such operating leases do not constitute "Debt", so long as the incurrence of such Debt would have been permitted under such clause (ii) had the operating lease in question been a Capital Lease. 36 (c) Notwithstanding the provisions of Section 4.2(b) above, the Company and its Restricted Subsidiaries shall not issue any Debt pursuant to Section 4.2(b)(ii) above (A) if the proceeds thereof are used, directly or indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any Subordinated Obligations, unless the provisions of such Debt contain subordination provisions which, in the aggregate, subordinate such Debt to the Notes in substantially the same manner as such Subordinated Obligations were subordinated to the Notes (or in a manner which is more subordinated than such Subordinated Obligations) or (B) if such Debt is subordinate or junior in any respect to any Senior Debt, unless such Debt either specifically provides that such Debt is to rank Pari Passu with the Notes or is expressly subordinated in ---- ----- right of payment to the Notes (provided that, with respect to the provisions of -------- this clause (B), no effect shall be given to any distinctions between different categories of unsubordinated Debt which might otherwise exist by reason of (x) any liens or other encumbrances arising or created in respect of some but not all unsubordinated Debt, (y) intercreditor agreements between holders of different classes of unsubordinated Debt or (c) different maturities or prepayment provisions on any such unsubordinated Debt). Notwithstanding anything to the contrary set forth in this Section 4.2, the maximum amount of Debt that the Company or any Restricted Subsidiary may issue pursuant to this Section 4.2 shall not be deemed to be exceeded due solely to fluctuations in the exchange rates of currencies. In addition, neither the Company nor any Restricted Subsidiary shall issue any Secured Debt (other than Debt incurred pursuant to clauses (i), (ii), (iv), (v), (vi), (vii) and (ix) of Section 4.2(b) above) which is not Senior Debt, unless contemporaneously therewith effective provision is made to secure the Notes equally and ratably with such Secured Debt, to the reasonable satisfaction of Holders of the Notes holding at least a majority of the outstanding principal amount of the Notes, for so long as such Secured Debt is secured by a Lien. All references in this Section 4.2 to the principal amount of any Debt shall be deemed, with respect to any Debt which is Preferred Stock, to refer to the liquidation value of such Preferred Stock. SECTION 4.3. Limitation on Restricted Payments. (a) The Company --------------------------------- shall not, and shall not permit 37 any of its Restricted Subsidiaries to directly or indirectly (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of its Capital Stock (except dividends or distributions payable solely in its Non-Convertible Capital Stock or in options, warrants or other rights to purchase its Non- Convertible Capital Stock and except dividends or distributions payable to the Company or any of its Restricted Subsidiaries), (ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company from any stockholder of the Company (other than any Restricted Subsidiary of the Company) other than any purchase, redemption or acquisition of Mezzanine Shares and/or Mezzanine Warrants made in connection with a prepayment of Notes pursuant to Section 3.5, (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition, and other than the mandatory purchase, repurchase, redemption or acquisition of Subordinate Obligations), or (iv) make any Investment in any Affiliate of the Company, other than any of its Restricted Subsidiaries (after giving effect to such Investment) and other than in any directors, officers or employees of the Company or any of its Restricted Subsidiaries (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to as a "Restricted Payment") if at the time of and after giving effect to such Restricted Payment (the amount of any such Restricted Payment, if other than cash, as determined by the Board of Directors of the entity making such Restricted Payment, whose determination shall be conclusive and evidenced by a Board Resolution): (x) a Default or Event of Default shall have occurred and be continuing (or would result there from), or 38 (y) the aggregate amount expended for all Restricted Payments, other than those Restricted Payments permitted pursuant to clauses (i), (ii), (iii), (vi), (viii), (ix) and (x) of Section 4.3(b) hereof (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive and evidenced by a Board Resolution), after the date of this Agreement shall exceed the sum, without duplication, of: (1) fifty percent (50%) of the aggregate amount of the Consolidated Net Income (or, if the Consolidated Net Income is a loss, minus 100% of the aggregate amount of the Consolidated Net Income) of the ----- Company (determined by excluding income resulting from the transfers of assets received by the Company or a Restricted Subsidiary from an Unrestricted Subsidiary) accrued on a cumulative basis during the period (taken as one accounting period) beginning on the first day of the quarter immediately following the Closing Date and ending on the last day of the last fiscal quarter preceding the date of determination, plus ---- (2) the aggregate net proceeds (including the fair market value of noncash proceeds as determined in good faith by the Board of Directors of the Company) received by the Company from the issuance and sale permitted by this Agreement of the Capital Stock of the Company (other than Redeemable Stock), except to the extent such proceeds are applied pursuant to and in the manner provided in the provisions of Section 4.3(b)(i) hereof, to a Person who is not a Restricted Subsidiary of the Company or an Unrestricted Subsidiary of the Company, including an issuance or sale permitted by this Agreement for cash or other property upon the conversion of any Debt of the Company subsequent to the Closing Date, or from the issuance of any options, warrants or other rights to acquire Capital Stock of the Company (in each case, exclusive of any Redeemable Stock or any options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the Stated Maturity of the Notes), plus ---- 39 (3) the amount by which Debt of the Company or any of its Restricted Subsidiaries is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the issuance of Debt of the Company or any of its Restricted Subsidiaries convertible or exchangeable for Capital Stock (other than Redeemable Stock) (less the amount of any cash or the value of any other property of the Company or any Restricted Subsidiary distributed by the Company or any Restricted Subsidiary upon such conversion or exchange), plus ---- (4) an amount equal to the net reduction in Investments in Unrestricted Subsidiaries (other than such Investments made pursuant to clause (iii) of the second paragraph of Section 4.3(b)) resulting from payments of interest on Debt, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, or from redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), plus ---- (5) $2,750,000. (b) The provisions of Section 4.3(a) shall not prohibit: (i) any purchase, redemption or other acquisition of Capital Stock or Debt of the Company or any of its Restricted Subsidiaries made in exchange for, or out of the proceeds of a substantially concurrent sale of, Capital Stock of the Company (other than Redeemable Stock or Exchangeable Stock); (ii) any purchase, redemption or other acquisition of Debt of the Company or any of its Restricted Subsidiaries made in exchange for, or out of the proceeds of a substantially concurrent sale of, Debt of the Company which is permitted to be issued pursuant to Section 4.2; 40 (iii) the making of Investments in Unrestricted Subsidiaries of the Company in an aggregate amount not to exceed $1,000,000 in each fiscal year; (iv) dividends paid within sixty (60) days after the date of declaration thereof if at such date of declaration such dividend would have complied with this Section; (v) provided that no Event of Default has occurred and is continuing, the payment of dividends on the Capital Stock of the Company, following any public offering of Capital Stock of the Company, of up to six percent (6%) per annum of the net proceeds thereof received by the Company (provided that the Company has prepaid or acquired, either pursuant to the provisions of Section 3.7 hereof or otherwise, at least thirty percent (30%) of the aggregate principal amount of the Notes outstanding on the Closing Date); (vi) payments to the Company in respect of Debt of any Restricted Subsidiary of the Company owed to the Company, or payments to any Restricted Subsidiary of the Company in respect of Debt of the Company or another Restricted Subsidiary owed to such Restricted Subsidiary; (vii) any purchases of Capital Stock made by the Company from employees or their legal representatives in connection with retirements of, or terminations of employment of, employees; (viii) any purchases of Capital Stock of the Company from the Company's employee stock ownership plan or the estate of any Person who was a member of management or an employee of the Company with the proceeds of life insurance purchased by the Company on the life of such Person; (ix) payment of the Deferred Payment Amount pursuant to, and in accordance with, Section 2.6 of the Main Transaction Agreement and the terms of the Deferred Purchase Price Agreement (as defined in the Main Transaction Agreement); 41 (x) distribution of the Installment Amount pursuant to, and in accordance with, Section 2.7 of the Main Transaction Agreement and the terms of the Escrow Agreement (as defined in the Main Transaction Agreement); and (xi) payments or distributions pursuant to or in connection with a consolidation, merger or other transaction that complies with the provisions of Article II hereof. SECTION 4.4. Limitation on Restrictions on Distributions from ------------------------------------------------ Subsidiaries of the Company. The Company shall not, and shall not permit any of - --------------------------- its Restricted Subsidiaries to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any such Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock or pay any Debt or other obligation owed to the Company or any other Restricted Subsidiary of the Company, (b) make any loans or advances to the Company or any other Restricted Subsidiary of the Company or (c) transfer any of its property or assets to the Company, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Closing Date (including those arising under or relating to the Credit Agreement) and any refinancing or refunding thereof permitted pursuant to Section 4.2 hereof; (2) any encumbrance or restriction with respect to a Subsidiary of the Company pursuant to an agreement relating to any Acquired Debt of such Subsidiary; (3) any encumbrance or restriction pursuant to an agreement effecting a refinancing of Debt issued pursuant to an agreement referred to in clause (1) or (2) of this Section or contained in any amendment to an agreement referred to in clause (1) or (2) of this Section; provided that the -------- encumbrances and restrictions contained in any such refinancing agreement or amendment are, in the determination of the Board of Directors of the relevant entity, whose determination shall be conclusive and evidenced by a 42 Board Resolution, in the aggregate, not materially less favorable to the Holders of the Notes than encumbrances and restrictions contained in such agreements; (4) in the case of Section 4.4(c) above, any encumbrances or restrictions (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any of its Restricted Subsidiaries not otherwise prohibited by this Agreement, (C) arising or agreed to in the ordinary course of business and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any of its Restricted Subsidiaries in any manner material to the Company and its Restricted Subsidiaries taken as a whole or (D) on any property or assets of any Restricted Subsidiary substantially all of whose assets are secured by Liens not otherwise prohibited by this Agreement; (5) in the case of Section 4.4(c) above, any restrictions contained in security agreements or mortgages securing Debt of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages; and (6) any restriction with respect to a Restricted Subsidiary of the Company imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary. SECTION 4.5. Limitation on Transactions with Affiliates. (a) The ------------------------------------------ Company shall not, and shall not permit any of its Subsidiaries to, conduct any business or enter into any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) or series of related transactions with any Affiliate of the Company or any owner of five percent (5%) or more of any class of Capital Stock of the Company 43 or with an Affiliate of any such owner (other than a Subsidiary of the Company or any employee stock ownership plan for the benefit of the Company's or any of its Subsidiaries' directors, officers or employees) unless the terms of such business, transaction or series of transactions are (i) set forth in writing, (ii) on terms and conditions that are not materially less favorable to the Company or such Subsidiary than those terms and conditions that would be obtainable at the time for a comparable transaction or series of similar transactions in arm's-length dealings with an unrelated third Person and (iii) if the amount involved in any transaction or series of similar transactions is in excess of $500,000 in any one instance or are in excess of $1,000,000 in aggregate over any one-year period, the disinterested members of the Board of Directors have, by a Board Resolution, determined in good faith that the criteria set forth in clause (ii) are satisfied. (b) The provisions of Section 4.5(a) shall not prohibit (i) any Restricted Payment permitted to be paid pursuant to Section 4.3, (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options, stock appreciation rights, stock ownership and similar benefit plans approved by the Board of Directors, (iii) compensation and benefit arrangements, and loans and advances to officers and employees, in the ordinary course of business based on past practice, (iv) the payment of reasonable fees and expenses to directors of the Company and its Subsidiaries who are not employees of the Company or its Subsidiaries, (v) any transaction between the Company and a Subsidiary of the Company or between Subsidiaries of the Company, (vi) any payments or other transactions pursuant to any tax-sharing agreement between the Company and any other Person with which the Company files a consolidated tax return or with which the Company is part of a consolidated group for tax purposes, (vii) any transaction determined by a nationally recognized investment banking firm or a nationally recognized accounting firm to be reason able or fair to the Company or any of its Subsidiaries which is a party thereto, (viii) any amendment, modification, extension or renewal of any of the foregoing arrangements; provided that the provisions of any such -------- amendment, modification, extension or renewal are (1) approved by the disinterested members of the Board of 44 Directors or (2) determined by a nationally recognized investment banking firm or a nationally recognized accounting firm to be reasonable or fair to the Company or any of its Subsidiaries which is a party thereto, (ix) any fees, expenses or indemnities payable by the Company to Windward pursuant to the terms of that certain letter agreement, dated of even date herewith, between the Company and Windward, and (x) any fees, expenses or indemnities payable by the Company to Windward pursuant to the terms of the Financial Advisory Services Agreement or any similar agreement entered into after the date of this Agreement between the Company and Windward. SECTION 4.6. Foreign Investment in Real Property Tax Act of 1980 ---------------------------------------------------- ("FIRPTA"). The Company shall not become a "United States real property holding - ---------- corporation" within the meaning of Section 897(c)(2) of the Code, except where it has obtained the prior written consent of Windward/Merban. SECTION 4.7. Notice of Default. The Company will furnish to each of ----------------- the Holders of the Notes, within thirty (30) days following the date in which the Company becomes aware of the existence of any condition or event which constitutes a Default or an Event of Default, written notice specifying the nature and period of existence thereof and the action which the Company is taking or proposes to take with respect thereto. SECTION 4.8. Authorizations and Approvals. The Company will promptly ---------------------------- make or obtain, from time to time at its own expense, all such governmental notices, filings, licenses, authorizations, consents, permits and approvals as may be required to enable it to comply with obligations hereunder and under the Notes. SECTION 4.9. Provision of Periodic Financial Information. The ------------------------------------------- Company shall keep adequate records and books of account with respect to its business activities in which proper entries are made in accordance with generally accepted accounting principles reflecting its financial transactions; and cause to be prepared and furnished to the Holders of the Notes the following (all to be prepared in accordance with generally accepted accounting principles applied on a consistent basis, unless the Company's certified public accountants concur 45 in any change therein and such change is consistent with generally accepted accounting principles): (a) not later than 120 days after the close of each fiscal year of the Company, audited financial statements of the Company and its Subsidiaries as of the end of such year, on a consolidated and consolidating basis, certified, in the case of the consolidated statements, by Coopers & Lybrand L.L.P., or another firm of independent certified public accountants of recognized standing selected by the Company; (b) not later than sixty (60) days after the end of each quarterly accounting period of the Company, unaudited interim financial statements of the Company and its Subsidiaries as of the end of such period and of the portion of the Company's financial year then elapsed, on a consolidated basis, certified by the chief financial officer or treasurer of the Company as prepared in accordance with generally accepted accounting principles and fairly presenting in all material respects the consolidated financial position and results of operations of the Company and its Subsidiaries for such period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes; (c) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which the Company has made available to its shareholders generally and copies of any regular, periodic and special reports or registration statements which the Company files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; (d) concurrently with the delivery of the financial statements described in clauses (a) and (b) of this Section 4.11, a certificate of the Company's chief financial officer, treasurer or controller certifying as to the Company's compliance with each of the provisions of this Article IV and illustrating such compliance, with such calculations and other details as may be reasonably requested by any Holder; and 46 (e) such other information as any Holder, from time to time, may reasonably request, relating to the Company or its Subsidiaries. ARTICLE V Events of Default; Remedies --------------------------- SECTION 5.1. Events of Default. An "Event of Default" occurs if: ----------------- (a) the Company defaults in the payment of any interest on any of the Notes when the same becomes due and payable, whether or not such payment shall be prohibited by Article VI, and such default continues for fifteen (15) days; or (b) the Company defaults in the payment of the principal of any of the Notes when the same becomes due and payable at the stated maturity, upon redemption, upon acceleration or otherwise, whether or not such payment shall be prohibited by Article VI; or (c) the Company fails to comply with any of the provisions applicable to it under Article II of this Agreement; or (d) the Company fails to comply with any of the other provisions applicable to it under the Notes or as otherwise set forth in this Agreement (other than as specifically provided in the other clauses of this Section 5.1) and in each case the failure continues for thirty (30) days; or (e) an event of default occurs under any instrument under which there may be issued, or by which there may be secured or evidenced, any Debt of the Company or any of its Restricted Subsidiaries which is a Significant Subsidiary resulting in the acceleration of such Debt, or any default occurs in payment of any such Debt on the final maturity date thereof, including pursuant to any mandatory redemption or prepayment provision, beyond any applicable grace period, if the total of all such Debt which has been so accelerated and any additional Debt which has not been paid on the final maturity date 47 thereof shall exceed $5 million, and there shall have been a failure to obtain rescission or annulment of all such accelerations or to pay in full the amount in default (together with any applicable interest); or (f) the Company or any of its Significant Subsidiaries pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case; (ii) consents to the entry of an order for relief against it in an involuntary case; (iii) consents to the appointment of a Custodian of it or for any substantial part of its property; or (iv) makes a general assignment for the benefit of its creditors; or (g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of its Significant Subsidiaries in an involuntary case; (ii) appoints a Custodian of the Company or any of its Significant Subsidiaries or for any substantial part of its property; or (iii) orders the winding up or liquidation of the Company or any of its Significant Subsidiaries, and the order or decree remains unstayed and in effect for sixty (60) days; or (h) any judgment or decree for the payment of money in excess of $5 million or its foreign currency equivalent at the time is entered against the Company or any of its Significant Subsidiaries and is not discharged and either (i) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (ii) there is a period of 48 sixty (60) days following the entry of such judgment or decree during which such judgment or decree is not discharged, waived or the execution thereof stayed; or (i) the Company, at any time, fails to comply with Section 4.6 hereof. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. A default under clauses (c) or (d) above shall not constitute an Event of Default until the Holders of a majority in principal amount of the Notes notify the Company of the default and the Company does not cure the default within thirty (30) days after receipt of such notice. The notice must specify the Default and demand that it be remedied. SECTION 5.2. Acceleration. If an Event of Default (other than an ------------ Event of Default specified in Section 5.1(f) or (g) with respect to the Company) occurs and is continuing, the Holders of a majority of the principal amount of the Notes at the time outstanding, by notice to the Company, may declare the principal of and accrued interest on all the Notes to be due and payable. Subject to the provisions of Article VI, upon such a declaration such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 5.1(f) or 5.1(g) with respect to the Company occurs and is continuing, then the principal of all of the Notes shall ipso facto become and ---- ----- be immediately due and payable without any declaration or other act on the part of any Holder of the Notes. The Holders of a majority in principal amount of the Notes by notice to the Company may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or inter est that has become due solely because of acceleration. In the event of a declaration of acceleration because an Event of Default set forth in clause (e), (h) or (i) above has occurred and is continuing, such declaration of 49 acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (e), (h) or (i) shall be remedied, cured by the Company or waived by the holders of the relevant Debt within sixty (60) days after the declaration of acceleration with respect thereto. SECTION 5.3. Rights and Remedies Cumulative. No right or remedy ------------------------------ herein conferred upon or reserved to the Holders of the Notes is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent or subsequent assertion or employment of any other appropriate right or remedy. SECTION 5.4. Delay or Omission Not Waiver. No delay or omission of ---------------------------- the Holders of the Notes to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Holders of the Notes may be exercised from time to time, and as often as may be deemed expedient, by the Holders of the Notes. SECTION 5.5. Waiver of Stay or Extension Laws. The Company covenants -------------------------------- (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of any Note; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Holder but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 5.6. Waiver of Past Defaults. The Holders of a majority of ----------------------- the principal amount of the Notes then outstanding by notice to the Company may waive any existing Default or Event of Default and its conse- 50 quences except a Default or Event of Default arising out of or related to Section 5.1(a) or (b); provided that Windward/Merban or any Affiliate thereof -------- may by itself waive any existing Default or Event of Default arising out of or relating to Section 5.1(i) hereof and its consequences. A Default or Event of Default and its consequences arising out of or related to Section 5.1(a) or (b) may be waived only by all of the Holders of the Notes then outstanding by notice to the Company. When a Default or Event of Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right. SECTION 5.7. Rights of Holders To Receive Payment. Notwithstanding ------------------------------------- any other provision of this Agreement or the Notes other than Article VI hereof, the right of any Holder to receive payment of principal of, premium, if any, and interest on the Notes held by such Holder, on or after the respective due dates expressed in the Notes, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be affected without the consent of such Holder. ARTICLE VI Subordination ------------- SECTION 6.1. Agreement To Subordinate. The Company agrees, and each ------------------------ Holder of the Notes by accepting a Note agrees, that the indebtedness incurred under this Agreement or evidenced by the Notes, including without limitation all indemnification obligations of the Company under Article XI, is subordinated in right of payment, to the extent and in the manner provided in this Article VI, to the prior payment in full in cash of all Senior Debt, and that the subordination is for the benefit of the holders of Senior Debt, and only indebtedness of the Company which is Senior Debt shall rank senior to the Notes (and in such case only to the extent and on the terms and conditions set forth herein). SECTION 6.2. Liquidation, Dissolution, Bankruptcy. Upon any ------------------------------------- distribution to creditors of the Company in a liquidation or a total or partial dissolution of the Company or in a bankruptcy, reorganization, insolven- 51 cy, receivership or similar proceeding relating to the Company or its property: (1) holders of Senior Debt shall be entitled to receive payment in full in cash of the Senior Debt or provisions satisfactory to the holders of Senior Debt shall be made for such payment before the Holders of the Notes shall be entitled to receive any payment of principal of or interest on the Notes or in respect of any other obligation arising under this Agreement; and (2) until the Senior Debt is paid in full, in cash, any distribution to which the Holders of the Notes would be entitled but for this Article VI shall be made to holders of Senior Debt as their interests may appear, except that the Holders of the Notes may receive securities that are subordinated to Senior Debt to at least the same extent as the Notes. SECTION 6.3. Default on Senior Debt. If any Senior Debt is not paid ---------------------- when due and such default is not cured or waived in writing and the holder of such Senior Debt has not waived in writing the benefits of this sentence, the Company may not pay principal of or interest on the Notes or make any payment in respect of any other obligation arising under this Agreement or acquire or redeem any Notes for cash or property other than Capital Stock of the Company or securities that are subordinated to Senior Debt to at least the same extent as the Notes unless and until such default shall have been cured or waived in writing or shall have ceased to exist or such Senior Debt shall have been discharged in accordance with its terms or the holders of such Senior Debt shall have waived in writing the benefit of this sentence, after which the Company shall resume making any and all required payments in respect of the Notes including any missed payments. (Such period during which such payments, acquisitions and redemptions are prohibited being hereinafter referred to as a "Payment Default Blockage Period"). In addition, during the continuance of any other event of default with respect to any Senior Debt pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, upon the 52 receipt by the Company of written notice thereof from or on behalf of the holders of at least a majority of the principal amount of such Senior Debt (taken together as one class) or the Agent on behalf of such holders of Senior Debt, the Company may not pay principal of or interest on the Notes or make any payment in respect of any other obligation arising under this Agreement or acquire or redeem any Notes for cash or property other than Capital Stock of the Company or securities that are subordinated to Senior Debt to at least the same extent as the Notes for a period (the "Non-Monetary Default Blockage Period") commencing on the date of receipt of such notice until the earliest of (x) 180 days thereafter (or, if the holders of the Senior Debt are then stayed from exercising remedies under the Credit Agreement until the earlier of 240 days thereafter or the expiration of such stay), (y) the date, if any, on which the Senior Debt to which such event of default relates is discharged in accordance with its terms or such event of default is waived in writing by the holders of such Senior Debt or otherwise cured and (z) the date, if any, on which such Non- Monetary Default Blockage Period shall have been terminated by written notice to the Company from or on behalf of such holders of Senior Debt or the Agent on behalf of such holders of Senior Debt, after which, in the case of clause (x), (y) or (z), the Company shall, subject to the first sentence of this Section 6.3, resume making any and all required payments in respect of the Notes, including any missed payments; provided that nothing in this Section shall have -------- any effect on the rights of the Holders of the Notes to accelerate the maturity of the Notes pursuant to Section 5.2 (except to the extent otherwise provided in Section 6.4 below); and provided, further, that, subject to the first sentence -------- ------- of this Section 6.3, nothing in this sentence shall prevent payment by the Company on the Notes after 180 days (or up to 240 days, in the circumstances described above) have passed following notice in writing to the holders of Senior Debt of such acceleration pursuant to Section 6.4. No more than one notice of a Non-Monetary Default Blockage Period may be given by or on behalf of the holders of any Senior Debt or the Agent on behalf of such holders of Senior Debt in any 365 day period and no more than four (4) such notices in the aggregate may be given by or on behalf of such holders after the date hereof. Notwithstanding anything in this Agreement to the contrary, there must be 120 consecutive days in any 365-day period 53 in which no Non-Monetary Default Blockage Period is in effect. No event of default (other than an event of default arising under the Credit Agreement) that existed or was continuing (it being acknowledged that any subsequent action that would give rise to an event of default pursuant to any provision under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose) on the date of commencement of any Non- Monetary Default Blockage Period with respect to the Senior Debt initiating such Non-Monetary Default Blockage Period shall be, or shall be made, the basis for the commencement of a second Non-Monetary Default Blockage Period by the representative for, or the holders of, such Senior Debt whether or not within a period of 365 consecutive days, unless such event of default shall have been cured or waived for a period of not less than ninety (90) consecutive days. SECTION 6.4. Acceleration of Payment of Notes and Exercise of ------------------------------------------------ Remedies. Until the Senior Debt shall have been paid in full, in the event - -------- that, and during the continuance of any Event of Default described in Article V hereof, all or any portion of the unpaid principal amount of the Notes shall have been declared due and payable pursuant to the provisions of Article V hereof, such declarations shall not be effective until the earliest of (i) the date on which an Event of Default under Section 5.1(f) or (g) with respect to the Company has occurred, or (ii) the date on which the maturity of any Senior Debt under the Credit Agreement is accelerated, or (iii) sixty (60) days after the date of such declaration. SECTION 6.5. When Distribution Must Be Paid Over. In the event that ----------------------------------- any Note is declared due and payable before its Stated Maturity, then no payment or distribution of any kind or character shall be made in respect of such Note and the holders of the Senior Debt outstanding at the time of such declaration shall be entitled to receive payment in full in cash of all amounts due (including by reason of acceleration), or appropriate provision satisfactory to the holders of such Senior Debt shall be made for such payment, before the Holder of any Note is entitled to receive any payment or distribution of any kind or character (including any payment which may be payable by reason of the payment of any other Debt of the Company being subordinate to the payment of the Notes by the Company). Notwithstanding 54 the foregoing, if a distribution is made to the Holders of the Notes that pursuant to this Article VI should not have been made to them, the Holders of the Notes who receive the distribution shall hold it in trust for holders of Senior Debt and pay it over to them as their interests may appear, provided that the holders of Senior Debt seeking such payment notify the Holders within sixty (60) days of the Holders' receipt thereof that such payment should not have been made. SECTION 6.6. Subrogation. After all Senior Debt is paid in full and ----------- until the Notes are paid in full, the Holders of the Notes shall be subrogated (pro rata with the holders of all Debt of the Company and its Subsidiaries - ---- ---- which, by its express terms, ranks Pari Passu with the Notes and is entitled to ---- ----- like rights of subrogation) to the rights of holders of Senior Debt to receive the payments or distributions applicable to the Senior Debt. Any payment or distribution made under this Article VI to holders of Senior Debt which otherwise would have been made to the Holders of the Notes except for the provisions of this Article VI shall, as between the Company, its creditors (other than the holders of the Senior Debt) and the Holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Debt, and no payments or distributions to the holders of the Notes of cash, property or securities by virtue of the subrogation herein provided shall, as between the Company, its creditors (other than the holders of the Senior Debt) and the Holders of the Notes, be deemed to be a payment to or on account of the Notes, it being understood that the provisions of this Article VI are and are intended solely for the purpose of defining the relative rights of the holders of the Notes on the one hand and the holders of Senior Debt on the other. SECTION 6.7. Relative Rights. This Article VI defines the relative --------------- rights of the Holders of the Notes and holders of Senior Debt. Nothing in this Agreement shall: (1) impair, as between the Company and the Holders of the Notes, the obligations of the Company, which are absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms (provided, however, that this provision is not intended to limit the restrictions 55 on payments on the Notes set forth in Section 6.3 hereof); or ----------- (2) prevent any Holder of the Notes from exercising its available remedies upon a Default or an Event of Default, subject to the rights of holders of Senior Debt to receive distributions otherwise payable to the Holders of the Notes (provided, however, that this provision is not intended to limit the provisions of Section 6.4). If the Company fails because of this Article VI to pay principal of or interest on a Note on the due date, the failure is still an Event of Default. SECTION 6.8. Subordination May Not Be Impaired by Company. No right -------------------------------------------- of a holder of Senior Debt to enforce the subordination of the indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or by its failure to comply with this Agreement. SECTION 6.9. Reinstatement. If, at any time, all or part of any ------------- payment with respect to Senior Debt previously made by the Company or any other Person is rescinded for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Company or such other Person), the subordination provisions set forth herein shall continue to be effective or be reinstated, as the case may be, all as though such payment had not been made. SECTION 6.10 Proofs of Claim. If, while any Senior Debt is --------------- outstanding, any Event of Default under Section 5.1(f) or (g) with respect to the Company only of this Agreement occurs, each Holder of a Note shall, to the extent permitted by applicable law, duly and promptly take such action as the Agent may reasonably request to collect any payment hereunder to which the holders of Senior Debt may be entitled hereunder or under the Notes, and to file appropriate claims or proofs of claim in respect of this Agreement and the Notes. Upon the failure of any Holder of a Note to take any such action, the Agent is hereby irrevocably authorized and empowered (in its own name or otherwise and to the extent permitted by applicable law), but shall have no obligation, to demand, use, collect and receive every payment or distribution 56 referred to hereunder and under any such Note and to file claims and proofs of claim with respect to this Agreement and the Notes and the Holders of the Notes hereby appoint the Agent as attorney-in-fact for such Holders of the Notes to take any and all actions permitted by this paragraph to be taken by such Holders of the Notes; provided, however, that the Agent shall only be permitted to file -------- ------- such proofs of claim upon notice to each Holder and to the extent that the Holders have failed to make such filings by the date which is ten (10) days prior to the last date on which such Holders are permitted to make such filings as a matter of applicable Bankruptcy Law. SECTION 6.11 Non-Impairment. The Holders of the Notes agree and -------------- consent that, without notice to or assent by them, and without affecting the liabilities and obligations of the Company and the rights and benefits of the holders of the Senior Debt set forth in this Article VI: (1) the obligations and liabilities of the Company and any other party or parties for or upon the Senior Debt may, from time to time, be increased, renewed, refinanced, extended, modified, amended, restated, compromised, supplemented, terminated, waived or released; (2) the holders of Senior Debt, and any representative or representatives acting on behalf thereof, may exercise or refrain from exercising any right, remedy or power granted by or in connection with any agreements relating to the Senior Debt; and (3) any balance or balances of funds with any holder of Senior Debt at any time outstanding to the credit of the Company may, from time to time, in whole or in part, be surrendered or released, all as the holders of any Senior Debt, or any representative or representatives acting on behalf thereof, may deem advisable, and all without impairing, abridging, diminishing, releasing or affecting the subordination of the Notes to the Senior Debt. SECTION 6.12 No Modification. The provisions of this Article VI and --------------- the defined terms used in this Article VI are for the benefit of the holders from time to time of Senior Debt and, so long as any Senior Debt or 57 any commitments with respect thereto remain outstanding, such provisions and defined terms may not be modified, rescinded or canceled in whole or in part; provided that the provisions of this Article VI and the defined terms used in - -------- this Article VI may be modified, amended or supplemented by the parties to this Agreement upon obtaining the prior written consent of the holders of at least a majority of the principal amount of the Senior Debt (taken together as one class) or the Agent on behalf of such holders of Senior Debt. SECTION 6.13 Waivers. To the extent permitted by applicable law, the ------- Holders of the Notes and the Company hereby waive (A) notice of acceptance hereof by the holders of the Senior Debt and (B) all diligence in the collection or protection of or realization upon the Senior Debt. SECTION 6.14 Enforcement of Rights. The Company and the Holders of --------------------- the Notes hereby expressly agree that the holders of Senior Debt may enforce any and all rights derived herein by suit, either in equity or at law, for specific performance of any agreement contained in this Article VI or for judgment at law and any other relief whatsoever appropriate to such action or procedure. ARTICLE VII Transfer of the Notes --------------------- SECTION 7.1. Restriction on Transfer. During the period from the ----------------------- Closing Date to and including the date which is 180 days after the Closing Date, no Holder may sell, assign, transfer or dispose of any Note to any Person unless such sale, assignment, transfer or disposition is of one or more entire Mezzanine Security Units (including any shares of Common Stock issued upon exercise of Mezzanine Warrants) (i.e., the transferring Holder must transfer an equal percentage of its Notes, its Mezzanine Stock and its Mezzanine Warrants to the same Person), all in accordance with the terms of Section 7.4 of the Main Transaction Agreement. SECTION 7.2. Registration of Transfer. Subject to compliance with ------------------------ applicable law, upon surrender of 58 any Note for registration of transfer, the Company will execute and deliver in exchange therefor a new Note registered as such Holder may request. The Company may require payment by such Holder of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer. Notwithstanding anything to the contrary contained in this Agreement, no Holder shall be permitted to transfer any Note or assign any of its rights or obligations under this Agreement or the Notes, unless in each case (i) each such transferor or assignor has obtained the prior written consent of the Company (which consent shall not be withheld by the Company unless, in the opinion of the Company, such transfer or assignment together with all other such transfers or assignments made after the Closing could result in or create a significant risk (as defined below) that the Company may become subject to, or after any public offering of the Company will continue to be subject to, the informational requirements of the Exchange Act), (ii) each such transferee or assignee (other than the Company) has agreed in writing to be bound by the terms and conditions of this Agreement and the Note in question to the same extent and in the same manner as the transferor or assignor thereof, and (iii) the transfer to any such transferee or assignee is in compliance with all applicable federal, state and foreign securities laws. For the purposes of this Section 7.1, a "significant risk" shall be deemed to arise when the number of "holders of record" (as determined in accordance with the Exchange Act) is greater than 80% of the number of "holders of record" that would cause the application or continued application of the informational requirements of the Exchange Act under the then existing circumstances; provided that no transfer or assignment to or from any -------- Affiliate of a Holder shall be deemed to have created any such significant risk. SECTION 7.3. Register. The Company shall maintain a register of the -------- Holders of all the Notes issued pursuant to this Agreement. The Company will allow any Holder of a Note to inspect and copy such list at the company's principal place of business during normal business hours. The Company may refuse to effect any transfer of any Note on such register, and may refuse to recognize any transferee of such Note for all purposes hereunder and under such Note, if the Company determines in good faith that the transferor and/or transferee of 59 such Note have not complied with the provisions of Section 7.1 above. ARTICLE VIII Termination ----------- SECTION 8.1. Termination. This Agreement may be terminated upon the ----------- occurrence of any of the following events: (a) any termination of this Agreement by the mutual written agreement of each of the parties hereto, (b) any termination of the Main Transaction Agreement in accordance with the provisions of Article 10 thereof, or (c) the delivery of written notice of termination by any of the Purchasers to the Company if the Closing has not occurred by March 31, 1997 (provided that the right to terminate this Agreement pursuant to this Section 8.1(c) shall not be available to any party whose misconduct or failure to satisfy any of its obligations hereunder has been the cause of or resulted in any of the conditions hereunder not being satisfied prior to such date or in the Closing otherwise not occurring prior to such date); provided that, following -------- the consummation of the Closing in accordance with the provisions of the Main Transaction Agreement, the parties hereto may only terminate this Agreement pursuant to clause (a) above. SECTION 8.2. Liability. If this Agreement is terminated pursuant to --------- this Article, such termination shall be without liability of any party to any other party, except for any breach by such party of this Agreement or the Notes prior to the date of such termination. ARTICLE IX Amendments ---------- SECTION 9.1. Amendments. Subject to Section 6.12, the Company may ---------- amend this Agreement or the Notes with the written consent of the Holders of at least a majority of the principal amount of the Notes, except that without the consent of each Holder of the Notes, an amendment may not: 60 (1) reduce the amount of Notes whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Note; (3) reduce the principal of or extend the Stated Maturity of any Note; or (4) make any Note payable in a currency other than that stated in the Note; and that, without the consent of Windward/Merban, an amendment may not eliminate, amend, or otherwise modify the provisions of Section 4.6 or 5.1(i). It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section becomes effective, the Company shall mail to each of the Holders of Notes a notice briefly describing such amendment. The failure to give such notice to all Holders of Notes, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.2. Revocation and Effect of Consents and Waivers. Any --------------------------------------------- amendment to this Agreement or the Notes shall become effective in accordance with its terms when executed and delivered by the Company provided that the Company has received the requisite consents prior thereto. The Company shall not be obligated to execute any such amendment regardless of whether such consents have been received. Any waiver shall become effective when the requisite consents have been received or such later time as the Company may elect. A consent to an amendment or a waiver by a Holder of a Note shall bind the Holder and every subsequent Holder of that Note or portion of the Note that evidences the same Debt as the consenting Holder's Note, even if notation of the consent or waiver is not made on the Note. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Note or portion of the Note if the Company receives the notice of revocation before the date the amendment or waiver becomes effective. After an 61 amendment or waiver becomes effective, it shall bind every Holder of a Note. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders of Notes entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Agreement. If a record date is fixed, then, notwithstanding the immediately preceding paragraph, those persons who were Holders of Notes at such record date (or their duly designated proxies), and only those persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. SECTION 9.3. Notation on or Exchange of Notes. If an amendment -------------------------------- changes the terms of a Note, the Company may require the Holder of the Note to deliver it to the Company. The Company may place an appropriate notation on the Note regarding the changed terms and return it to the Holder. Alternatively, if the Company so determines, the Company in exchange for the Note shall issue a new Note that reflects the changed terms. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment. SECTION 9.4. Payment for Consent. Neither the Company, any Affiliate ------------------- of the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Agreement or the Notes unless such consideration is offered to be paid or agreed to be paid to all Holders which so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. 62 ARTICLE X Miscellaneous ------------- SECTION 10.1. Notices. All notices and other communications ------- pertaining to this Agreement or any Note shall be in writing and shall be deemed to have been duly given upon the receipt thereof by the other party. Such notices shall be delivered by hand, or mailed, certified or registered mail with postage prepaid, or sent by overnight courier: If to the Company, to it at: HCC Industries Inc. 4232 Temple City Blvd. Rosemead, CA 91770 Attention: Andy Goldfarb Telecopier: (818) 443-9074 With copies to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, NY 10022 Attention: Lou R. Kling, Esq. Telecopier: (212) 735-2000 If to Metropolitan Life, to: Metropolitan Life Insurance Company Corporate Equities 334 Madison Avenue, P.O. Box 633 Convent Station, NJ 07961-0633 Attention: Vice President Telephone: (201) 254-3359 Telecopier: (201) 254-3055 with a copy to: Metropolitan Life Insurance Company One Madison Avenue, Area 7H New York, NY 10010 Attention: Thomas C. Hoi Telephone: (212) 578-5599 Telecopier: (212) 578-3916 63 If to Windward/Merchant and Windward/Merban, to: Windward Capital Partners, L.P. Eleven Madison Avenue 28th Floor New York, NY 10010 Attention: Thomas Sikorski Fax: (212) 448-5481 and, if such notice relates to prepayments or redemptions or to Defaults or Events of Defaults, to: Credit Suisse First Boston Eleven Madison Avenue 26th Floor New York, NY 10010 Attention: David De Nunzio Fax: (212) 325-8266 or to such other Person or address as shall be furnished to the other party in writing. SECTION 10.2. Consent to Payment of Installment Amount. Each Holder ----------------------------------------- hereby consents in all respects to the payment by the Company of all amounts, including the Installment Amount (as defined in the Main Transaction Agreement), payable to the Sellers pursuant to and in accordance with the terms of Section 2.7 of the Main Transaction Agreement and the terms of the Escrow Agreement (as defined in the Main Transaction Agreement). SECTION 10.3. Parties. This Agreement shall inure to the benefit of ------- and be binding upon the parties hereto, each subsequent Holder of a Note and each of their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any Person, firm or corporation, other than the parties hereto and their respective successors and, with respect to Article VI, the holders of Senior Debt, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto, any subsequent Holder of a Note and their respective successors and assigns, and, with respect to Article VI, the holders of 64 Senior Debt and for the benefit of no other Person, firm or corporation. SECTION 10.4. Governing Law. THIS AGREEMENT AND THE RIGHTS AND ------------- OBLIGATIONS OF THE PARTIES HEREUNDER AND THE PARTIES SUBJECT HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. SECTION 10.5. Replacement Note. If any Note becomes mutilated and is ---------------- surrendered by the Holder thereof to the Company, or if the Holder thereof claims that any Note has been lost, destroyed or wrongfully taken, the Company will execute and deliver to such Holder a replacement note, upon the affidavit of the Holder thereof attesting to such loss, destruction or wrongful taking with respect to such Note. Such affidavit shall be accepted as satisfactory evidence of the loss, wrongful taking or destruction thereof and no indemnity shall be required as a condition of the execution and delivery of a replacement Note. SECTION 10.6. Successors and Assigns. All covenants and agreements ---------------------- of the Company in this Agreement or any Note shall bind their respective successors and assigns. SECTION 10.7. Severability Clause. In case any provision in this ------------------- Agreement or any Note shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability. SECTION 10.8. Further Assurances. Each party hereto or person or ------------------ entity subject hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto or person or entity subject hereto may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 65 SECTION 10.9. Entire Agreement. This Agreement, together with all ---------------- exhibits and schedules hereto, and the Notes are intended by the parties to be a final expression of their agreement in respect of the subject matter contained herein and therein, and supersede all prior agreements and understandings between the parties with respect to such subject matter. SECTION 10.10. Headings. The headings of the Articles and the -------- sections in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof. SECTION 10.11. Counterparts. This Agreement may be executed in ------------ counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same instrument. ARTICLE XI Indemnification --------------- SECTION 11.1. Indemnity of Holders of the Notes by the Company. ------------------------------------------------ Subject to Article VI, the Company agrees to (i) reimburse all present and prior Holders of the Notes for any costs and expenses (including, without limitation, attorneys' and paralegals' fees and expenses, including allocated in-house counsel fees) incurred by such present and prior Holders of the Notes in defending any suit brought against such Holders by the Company or any other Person in connection with the transactions contemplated by this Agreement, and (ii) indemnify and hold all present and prior Holders of the Notes and their respective officers, directors, employees, partners, Affiliates, attorneys and agents (collectively, the "Indemnitees") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgements, suits, costs, expenses or disbursements of any kind or nature whatsoever, including, without limitation, any Environmental Claims or Environmental Losses (each as defined in the Main Transaction Agreement), incurred by the Indemnitees, whether direct, indirect or consequential, as a result of or arising from or relating to any proceeding by any Person, whether threatened or initiated, asserting any claim for legal or 66 equitable remedy against any Person under any statute or regulation (including, without limitation, any federal or state securities or commercial laws or under any common law or equitable cause or otherwise, including any liability and costs under Environmental Laws (as defined in the Main Transaction Agreement)) or common law principles arising from or in connection with the past, present or future operations of the Company, its Subsidiaries or their respective predecessors in interest, in any way arising from or in connection with the negotiation, preparation, execution, delivery enforcement, performance and administration of this Agreement or any other document executed in connection herewith, provided that the Company shall have no obligation hereunder with respect to indemnified liabilities arising from the gross negligence or willful misconduct of any Indemnitee seeking such indemnification. To the extent that the indemnity set forth in this Section may be unenforceable because it is violative of any law or public policy, the Company shall pay the maximum portion which it is permitted to pay under applicable law. Any Indemnitee will promptly notify the Company of the commencement of any legal proceeding which may give rise to any indemnified liability under the foregoing indemnity and shall permit the Company to participate in the defense of such Indemnitee in any such proceeding; provided, however, that if any Indemnitee fails to provide prompt -------- ------- notice to the Company of any legal proceeding, such Indemnitee shall nevertheless be entitled to be indemnified under this Article XI to the extent (but only to the extent) that the Indemnitee can establish that the Company has not been prejudiced by the time elapsed. The foregoing indemnity shall survive the repayment of the Notes and the termination of this Agreement. 67 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. HCC Industries Inc. By:______________________ Name: Title: METROPOLITAN LIFE INSURANCE COMPANY By:______________________ Name: Title: WINDWARD/MERCHANT, L.P. By: Windward Capital Associates, L.P., its general partner By: Windward Capital Associates, Inc., its general partner By:______________________ Name: Title: WINDWARD/MERBAN, L.P. By: Windward Capital Associates, L.P., its general partner By: Windward Capital Associates, Inc. its general partner By:______________________ Name: Title: 68 EXHIBIT A --------- THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). NO SALE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE (OTHER THAN TO THE ISSUER THEREOF) MAY BE MADE UNLESS EITHER (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (B) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. FOR PURPOSES OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT WITH RESPECT TO EACH $1,000 OF PRINCIPAL AMOUNT AT MATURITY OF THIS NOTE IS $141.84, THE ISSUE DATE IS FEBRUARY 14, 1997 AND THE YIELD TO MATURITY IS 7.65% (COMPOUNDED SEMI-ANNUALLY). $________ February 14, 1997 SUBORDINATED NOTE ----------------- FOR VALUE RECEIVED, the undersigned, HCC Industries Inc., a Delaware corporation (the "Company"), promises to pay [INSERT NAME OF PURCHASER], or its registered assigns (the "Purchaser"), the principal sum of ___________ Dollars ($__________) on April 15, 2004, or such earlier date as the principal may become due pursuant to the terms hereof and to pay interest at a rate per annum equal to twelve percent (12%) on the unpaid principal amount hereof. The Company will pay interest semiannually on April 15 and October 15 of each year, commencing October 15, 1997 (or on the next Business Day following such date, in the event such date is not a Business Day). The Company shall pay interest on overdue principal and on overdue installments of interest at a rate per annum equal to the sum of two percent (2%) plus the interest rate otherwise applicable hereunder. Terms used herein and not otherwise defined have the meanings assigned to them in the Subordinated Note Agreement among the Company and the parties named therein dated as of the date hereof (the "Agreement"). Interest shall be payable in arrears on this Note semiannually as provided above and on such date as this Note may be prepaid or the maturity accelerated. Interest shall be computed on the basis of a 360-day year and the actual number of days elapsed. All payments of the principal of and interest on 69 this Note shall be made in money of the United States of America that at the time of payment is legal tender for the payment of public and private debts, by check in New York Clearing House Funds at the principal office of the Purchaser or by wire transfer of immediately available Federal Reserve funds into a bank account designated by the Purchaser in writing to the Company at least three Business Days before the Company makes such payment. The Company hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the Purchaser of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. This note is one of the Notes referred to in the Agreement, which Agreement, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for the subordination of this Note to Senior Debt of the Company, for optional prepayment of the principal hereof prior to maturity and for the amendment or waiver of certain provisions of the Agreement, all upon the terms and conditions therein specified. Additionally, this Note is subject to certain restrictions on transfer set forth in the Agreement. This Note shall be construed in accordance with and governed by the laws of the State of New York, without giving effect to the conflict of law principles thereof other than Section 5-1401 of the New York General Obligations Law. IN WITNESS WHEREOF, HCC Industries Inc. has caused this Note to be signed in its corporate name by a duly authorized officer and its corporate seal to be affixed hereto, and the same to be attested by its Secretary or Assistant Secretary, and to be dated as of the day and year first above written. HCC Industries Inc. By:_______________________ Name: Title: Attest: - ------------------------------ Name: Title: 70 EX-2.3 4 ESCROW AGREEMENT EXHIBIT 2.3 ================================================================================ ESCROW AGREEMENT Dated as of February 14, 1997 ================================================================================ ESCROW AGREEMENT This Escrow Agreement (this "AGREEMENT") is entered into as of February 14, 1997, by and among HCC Industries Inc., a Delaware corporation ("HCC"), the Sellers (the "SELLERS") listed on EXHIBIT C hereto, Windward Capital Associates, L.P. ("WINDWARD") and U.S. Trust Company of California, N.A., as escrow agent ("ESCROW AGENT"). B A C K G R O U N D - - - - - - - - - - 1. HCC, the Sellers, the Buyers and HCC Windward L.L.C. have entered into a First Amendment and Restatement to the Stock Purchase and Sale Agreement dated as of December 23, 1996 (the "Purchase Agreement"). Capitalized terms not defined herein shall have meaning given to such terms in the Purchase Agreement. 2. Pursuant to the Purchase Agreement, Sellers are entitled to be paid an aggregate amount of $69,282,486, plus interest thereon as the Installment Amount, subject only to the conditions set forth herein. 3. HCC is depositing $69,282,486 of its funds in cash (such cash, together with any securities or obligations in which it is invested, being the "FUND") in this escrow arrangement as security for its agreement to pay that amount to Sellers. 4. Pursuant to Section 4.4, Sellers have appointed Andrew Goldfarb (the "REPRESENTATIVE") as their representative and attorney in fact to take any and all actions necessary or desirable by or on behalf of the Sellers in this Agreement. 1. ESCROW. ------ 1.1 APPOINTMENT OF ESCROW AGENT. Escrow Agent is appointed to act in --------------------------- accordance with the terms hereof, and Escrow Agent accepts such appointment. 1.2 ESTABLISHMENT OF THE ESCROW ACCOUNT. ----------------------------------- 1.2.1 DELIVERY. Concurrently herewith, HCC has delivered the Fund to the Escrow Agent, to be held by Escrow Agent hereunder. HCC hereby makes the Fund, and all of its interest therein, part of the escrow created hereby. 1 1.2.2 SECURITY INTEREST. HCC hereby grants a security interest in ----------------- the Fund and its proceeds in favor of the Sellers. Said security interest is subordinate to the rights of any creditors of HCC with respect to unpaid claims against HCC existing as of the date hereof who have not consented to the transactions contemplated by the Purchase Agreement, until the Fund is delivered to the Sellers. 1.2.3 HOLDING OF FUNDS. Escrow Agent will hold the Fund and any ---------------- proceeds it receives with respect to the Fund in a separate account to be held in accordance with this Agreement. 1.2.4 INVESTMENT OF AMOUNTS IN THE FUND. --------------------------------- 1.3 Investment. The Escrow Agent shall invest any or all ---------- amounts in the Fund, and any undistributed accretions thereto or income with respect thereto, as directed in writing by the Company (with the consent of the Representative), in any of the following: (a)interest-bearing savings accounts with the Escrow Agent or with national banks or corporations endowed with trust powers having capital and surplus in excess of $1,000,000,000; (b)securities or obligations issued or guaranteed by the United States of America or any agency or instrumentality thereof; (c)certificates of deposit of or accounts with the Escrow Agent or national banks or corporations endowed with trust powers having capital and surplus in excess of $1,000,000,000; (d)tax exempt securities rated AAA or higher; (e)commercial paper and other obligations and securities with a term or less than three years, in each case, at the time of investment rated A-1 or A, as the case may be, by Standard & Poor's Corporation or Prime-1 or A-1, as the case may be, by Moody's Investor's Service, Inc. (the Escrow Agent having no liability to determine or inquire into the rating of said investment); or 2 (f) mutual funds that the Company reasonably determines primarily invests in securities or obligations of the type referred to in clauses (a) through (e) above. After April 1, 1997, interest shall be paid to the Sellers not less frequently than monthly in accordance with the percentages set forth on Exhibit C. In connection with any investment of the Fund, the Company shall provide the Escrow Agent with its and Sellers' taxpayer identification numbers. Failure to provide such information may cause the Escrow Agent to be required to withhold tax on any interest payable hereunder. 1.3.1 NO LIABILITY. The Escrow Agent shall not have any liability ------------ for any loss sustained as a result of any investment made pursuant to the instructions of the Company or as a result of any liquidation of any such investment prior to its maturity or for the failure of the Company to give the Escrow Agent any instruction to invest or reinvest any amounts in the Deferred Purchase Price Fund or any earnings thereon. 1.3.2 ESCROW FEES . HCC will be responsible for all other fees and ----------- expenses of Escrow Agent. 2. TERMS OF ESCROW; DISBURSEMENT OF FUNDS AND DOCUMENTS. ---------------------------------------------------- 2.1 DEPOSIT AND DISBURSEMENT OF FUNDS. Upon the delivery to Escrow --------------------------------- Agent of a legal opinion from O'Melveny & Myers (the "OPINION") the form of EXHIBIT B, Escrow Agent will: (a) Immediately deliver the Fund to Sellers (such delivery to be made to each Seller in the percentage amount set forth by such Seller's name on EXHIBIT C hereto by wire transfer in immediately available funds to the account of such Seller set forth on EXHIBIT C hereto). (b) Immediately deliver the Opinion to Windward. The delivery of the Fund to Sellers in accordance with clause (i) above shall be deemed payment by HCC of the First Installment. 2.2 ESCROW AGENT ROLE. Escrow Agent shall have no responsibility or ------------------ obligation for investigating or determining the validity or sufficiency of the statements made in the Opinion and shall exercise no discretion in connection with the foregoing disbursements. 3 3. ESCROW AGENT. ------------ 3.1 ESCROW AGENT QUALIFICATIONS. Escrow Agent shall at all times be a --------------------------- bank, savings and loan association or trust company in good standing, organized and doing business under the laws of the United States or a State of the United States, having combined capital and surplus of not less than five million dollars ($5,000,000) and shall be authorized under the laws governing its organization to exercise corporate trust powers and shall be authorized under such laws and the laws of the State of California to enter into and perform this Agreement. If Escrow Agent at any time ceases to have the foregoing qualifications, Escrow Agent will give notice of resignation to HCC, the Representative, and Windward, and a qualified successor escrow agent will be appointed in accordance with Section 3.4. 3.2 RESIGNATION. Escrow Agent or any successor to it may resign and be ----------- discharged of its duties and obligations hereunder by delivering written notice to the parties hereto specifying the effective date of such resignation, which date shall not be earlier than 30 days following the delivery of the notice of resignation. Such resignation will take effect on the date specified in the notice of resignation, unless a successor escrow agent has been appointed in accordance with the provisions of Section 3.4 and has accepted such appointment, in which case such resignation shall take effect immediately upon receipt by such successor escrow agent of the Fund and any other funds and documents then held in escrow. Escrow Agent may be removed by the joint action of HCC, the Representative, and Windward by delivery of a termination notice, with or without cause, at any time upon 30 days' prior written notice to Escrow Agent, which notice may be waived by Escrow Agent. 3.3 CONTINUATION. Notwithstanding any resignation or removal of Escrow ------------ Agent, Escrow Agent will continue to serve in its capacity as escrow agent until (a) a successor escrow agent has been appointed in accordance with Section 3.4 and has accepted such appointment, and (b) the Fund and any other funds and documents then held in escrow have been transferred to and received by the successor escrow agent. HCC, the Representative, and Windward will promptly take the necessary action to appoint a successor escrow agent in accordance with Section 3.4. 3.4 APPOINTMENT OF SUCCESSOR ESCROW AGENT. If at any time Escrow Agent ------------------------------------- resigns, is removed or otherwise becomes incapable of acting as escrow agent pursuant to this Agreement, or if at any time a vacancy occurs in the office of Escrow Agent for any other cause, a successor escrow agent located in Los Angeles County that meets the qualifications set forth in 4 Section 3.1 will be appointed by HCC with the written consent of the Representative and Windward, which consent may not be unreasonably withheld, by written instrument delivered to the successor escrow agent. If no successor escrow agent has been appointed at the effective date of resignation or removal of Escrow Agent or within 30 days after the time Escrow Agent became incapable of acting or a vacancy occurred in the office of Escrow Agent, any party hereto may petition a court of competent jurisdiction for an appointment of a successor escrow agent and Escrow Agent will have the right to refuse to make any disbursements from the escrow until a successor escrow agent is appointed and has accepted such appointment. Upon the appointment and acceptance of any successor escrow agent hereunder, Escrow Agent shall transfer the Fund and any other funds and documents then held in escrow to its successor. Upon receipt of such items by the successor escrow agent, Escrow Agent shall be discharged from any continuing duties or obligations under this Agreement, but such discharge shall not relieve Escrow Agent from any liability incurred prior to such event, and the successor escrow agent shall be vested with all rights, powers, duties and obligations of Escrow Agent under this Agreement. 3.5 LIMITATIONS ON LIABILITY OF ESCROW AGENT. ---------------------------------------- 3.5.1 RELIANCE. Escrow Agent may act upon any written notice, -------- certificate, instrument, request, waiver, consent, paper, or other document that Escrow Agent in good faith reasonably believes to be genuine and to have been made, sent, signed, prescribed, or presented by the proper person or persons. Escrow Agent will not be liable for the sufficiency, correctness or genuineness as to form, manner of execution or validity of any instrument presented, nor as to identity, authority, or rights of any person executing the same, except as provided herein. Escrow Agent will otherwise not be liable for any mistakes of fact or errors of judgment, or for any acts or omissions of any kind unless the same was caused by the willful misconduct or negligence of Escrow Agent. HCC will indemnify and hold Escrow Agent harmless from any claims, demands, causes of action, liabilities, damages or judgments, including the cost of defending any such action, together with any reasonable attorneys' fees of any nature (including appeal from an adverse judgment related to the same) incurred by Escrow Agent in connection with Escrow Agent's undertakings pursuant to the terms and conditions of this Agreement, unless such act or omission is a result of the willful misconduct or negligence of Escrow Agent. 3.5.2 LITIGATION. If Escrow Agent during or after the term of the escrow is made aware of any litigation with respect to the rights of any of 5 the parties hereto, or any money or documents deposited herein or affected hereby, Escrow Agent will have the right to discontinue any or all further acts on its part until such conflict is resolved, and Escrow Agent will have the further right to commence or defend any action or proceeding for the resolution of such conflict. If Escrow Agent files suit in interpleader, it will be fully released and discharged from all further obligations under this Agreement. 3.5.3 CONSULTATION WITH COUNSEL. Escrow Agent's sole responsibility will be as provided in this Agreement or as required by law. Escrow Agent may consult with legal counsel satisfactory to it in connection with any dispute, the construction of any provision of this Agreement or the duties and obligations of Escrow Agent under this Agreement, and will have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. 3.6 RELEASE OF ESCROW AGENT. The retention and distribution of the Fund ----------------------- and other funds and documents held in escrow in accordance with this Agreement will fully and completely release Escrow Agent from any obligations or liabilities assumed under this Agreement with respect thereto. 3.7 COMPENSATION OF ESCROW AGENT. Escrow Agent will be entitled to ---------------------------- compensation pursuant to the schedule of fees attached as EXHIBIT A, and to reimbursement of fees, costs and expenses, including reasonable attorneys' fees suffered or incurred by Escrow Agent in connection with the performance of its duties and obligations hereunder, including but not limited to, any suit in interpleader brought by Escrow Agent. HCC will be responsible for such compensation, fees, costs and expenses, and will promptly, upon demand by Escrow Agent, pay or reimburse Escrow Agent for all such amounts. Escrow Agent is not entitled to withhold any amounts from the Fund for such purposes. 4. AGREEMENTS BETWEEN HCC, SELLERS AND BUYER'S REPRESENTATIVE. The following agreements are matters for which Escrow Agent has no responsibility and with which it is not to be concerned. 4.1 COVENANT NOT TO SUE. HCC and Windward each agree not to institute ------------------- or participate in any legal or other proceeding that seeks directly or indirectly to set aside or void this escrow and security arrangement or to prevent the delivery of the Fund to Sellers, or to take any action that is intended to or would be reasonably likely to cause the Opinion not to be delivered. 6 4.2 SPECIFIC PERFORMANCE. HCC and Windward agree that the payment of -------------------- the Fund as contemplated hereby, and the rights and privileges granted to Sellers pursuant to this Agreement, represents a unique, extraordinary and special event that has peculiar value to Sellers, the loss of which cannot be reasonably or adequately compensated in damages in any action at law, and that a breach by failure to deliver the Fund as contemplated hereby will cause great and irreparable injury and damage. HCC and Windward agree that Sellers are entitled to the remedies of injunction, specific performance and other equitable relief to prevent a breach of this Agreement or a failure of delivery of the Fund. This subsection shall not be construed as a waiver of any other rights or remedies that Sellers may have for damages or otherwise. 4.3 REPRESENTATIONS OF HCC. HCC represents and warrants to Sellers that ---------------------- this Agreement has been validly executed and delivered and is its valid and binding obligation, enforceable against it in accordance with its terms, and that it is not subject to any agreement, restriction, understanding, court order, or other burden that is or would be violated by the provisions of this Agreement or the consummation of the transactions contemplated hereby. 4.4 POWER OF SELLERS' REPRESENTATIVE. Each Seller hereby -------------------------------- unconditionally and irrevocably appoints Andy Goldfarb, as attorney-in-fact, without power of substitution, with power and authority to execute any and all written consents and approvals of the Sellers, or other demands, notices, consents and approvals required or permitted hereunder, with the same effect as if the Seller had personally performed such act. If Andrew Goldfarb dies or becomes legally incompetent before the distribution of the Fund, the other Sellers must act together in such matters. 4.5 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. HCC, Sellers and ------------------------------------------- Windward each agree to sign all necessary documents and to take all other actions reasonably necessary to carry out the provisions of this Agreement and to further evidence their agreements hereunder. 5. ADMINISTRATIVE PROVISIONS. ------------------------- 5.1 NOTICES. All notices, demands, consents, requests, approvals, and ------- other communications required or permitted hereunder shall be in writing and shall be deemed to have been properly given (a) if hand delivered, or (b) effective upon receipt or, if refused, upon date of refusal if mailed by United States registered or certified mail, with postage prepaid, return receipt requested, or (c) if sent by a recognized private courier or overnight express company, return receipt requested (effective upon receipt or, if refused, upon the date of refusal), or (d) effective upon receipt if sent by 7 facsimile to each of the parties at the following addresses (or at such other addresses as shall be given in writing by any party to the others in accordance with this Section 5.1): IF TO WINDWARD: Windward Capital Partners, L.P. Eleven Madison Avenue 26th Floor New York, New York 10010 Attention: Thomas Sikorski Fax: (212) 448-5481 With a copy to: Skadden, Arps, Slate, Meagher & Flom, LLP 919 Third Avenue New York, New York 10022 Attention: Lou R. Kling, Esq. Fax: (212) 735-2000 IF TO HCC OR SELLER REPRESENTATIVE: 4232 Temple City Boulevard Rosemead, California 91770 Attention: Mr. Andrew Goldfarb Telecopy Number: (818) 443-9074 with copy to: Kent V. Graham, Esq. O'Melveny & Myers 1999 Avenue of the Stars, Suite 700 Los Angeles, California 90067 Telecopy Number: (310) 246-6779 IF TO ESCROW AGENT: U.S. Trust Company of California, N.A. 515 S. Flower Street, Suite 2700 Los Angeles, CA 90071 Attn: Corporate Trust Division Facsimile: (213) 488-1370 8 Courtesy copies shall be forwarded to the persons whose names are hereinabove preceded with the words "with copy to," but the delivery of copies to such persons shall not be necessary for the effectiveness of notice hereunder. 5.2 GOVERNING LAW. This Agreement shall be governed by the laws of ------------- the State of New York. 5.3 AMENDMENTS; SURVIVAL. No amendment, modification or alteration of -------------------- the terms hereof shall be effective or binding unless the same be in writing and signed by the parties hereto affected thereby. 5.4 SUCCESSORS AND ASSIGNS. Neither this Agreement nor any rights or ---------------------- obligations under it are assignable, and this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 5.5 PAYMENT OF FEES. In the event of litigation of any dispute or --------------- controversy arising from, in, under or concerning this Agreement and any amendments hereof, the prevailing party in such action shall be entitled to recover from the other party in such action, in addition to other relief, such sum as the court shall fix as reasonable attorneys' fees and expenses incurred by such prevailing party. 5.6 NO THIRD-PARTY RIGHTS. Nothing contained in this Agreement is --------------------- intended to and nothing contained herein shall be interpreted to confer on any party the rights of a third-party beneficiary, and this Agreement is for the sole benefit of the parties hereto. 5.7 NO WAIVER OF DEFAULT. No consent or waiver, express or implied, by -------------------- any party, to or of any breach or default by any other party in the performance by the other of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other party of the same or any other obligations of such party hereunder. Failure on the part of any party to complain of any act or failure to act of any other party, or to declare such other party in default, irrespective of how long such failure continues, shall not constitute a waiver by such party of its rights hereunder. 5.8 PARTICIPATION IN DRAFTING; INTERPRETATION. The provisions hereof ----------------------------------------- have been thoroughly reviewed by all parties and have been the subject of negotiations. Accordingly, no party (or its counsel) shall be considered to have been the exclusive preparer or draftsman of this Agreement, nor shall the provisions hereof be construed strictly against any such party on that account. Without limiting the generality of the foregoing, each party waives the provisions of Section 1654 of the California Civil Code and any 9 legal decision that would require interpretation of any claimed ambiguities against the party that drafted it. The provisions of this Agreement are to be interpreted in a reasonable manner to give effect to the intent of the parties reflected herein. 5.9 ENTIRE AGREEMENT. This Agreement, together with all other ---------------- agreements referenced herein, constitutes the entire agreement of the parties relating to the subject matter hereof, and supersedes any previous oral or written understandings concerning the same. 5.10 SEVERABILITY. If any clause or provision of this Agreement is ------------ illegal, invalid, or unenforceable under present or future laws effective during the term hereof, it is the intention of the parties hereto that the remainder of this Agreement shall not be affected thereby. 5.11 COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, all of which, when taken together, shall constitute one and the same instrument. 5.12 HEADINGS. The descriptive headings of the Sections of this -------- Agreement are for convenience only and do not constitute a part of this Agreement. [The rest of the page has been left blank] 10 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on the day and year first above written. HCC INDUSTRIES INC. A DELAWARE CORPORATION By:______________________________________________________ Name: Andrew Goldfarb Title: President SELLERS _________________________________ Andrew Goldfarb _________________________________ Andrew Goldfarb, Co Trustee for the Andrew and Denise Goldfarb Revocable Trust of 1995 _________________________________ Denise Goldfarb, Co Trustee for the Andrew and Denise Goldfarb Revocable Trust of 1995 _________________________________ Andrew Goldfarb, Co Trustee for the Andrew and Denise Goldfarb 1996 Unitrust Northern Trust Bank of California, N.A. Co Trustee for the Andrew and Denise Goldfarb 1996 Unitrust By: _____________________ Its:_____________________ 11 _________________________________ Christopher Bateman _________________________________ Linda Rillorta _________________________________ Steven Goldfarb _________________________________ Richard K. Ferraid _________________________________ Debra E. Ferraid _________________________________ Steven Goldfarb, as Trustee of the Jessica Anne Goldfarb Irrevocable Trust _________________________________ Steven Goldfarb, as Trustee of the Rebecca Goldfarb Irrevocable Trust WINDWARD CAPITAL ASSOCIATES, L.P. By: Windward Capital Associates, Inc. Its: General Partner By:________________________________________________ Name:_________________________ Title:________________________ U.S. TRUST COMPANY OF CALIFORNIA, N.A. By:________________________________________________ Name:_________________________ Title:________________________ 12 EXHIBIT A SCHEDULE OF ESCROW FEES ----------------------- A-1 EXHIBIT B FORM OF LEGAL OPINION B-1 EXHIBIT C Stockholder Redemption Wire Instructions Percentage ----------- ---------- ----------------- The Andrew and 57.650% See attached Denise Goldfarb Revocable Trust of 1995 The Andrew and 5.915% See attached Denise Goldfarb 1996 Unitrust Christopher Bateman 6.699% See attached and Linda Rillorta Richard L. Ferraid and 2.487% See attached Debra E. Ferraid Steven Goldfarb 19.809% See attached The Jessica Anne 3.923% See attached Goldfarb Irrevocable Trust The Rebecca Goldfarb 3.517% See attached Irrevocable Trust B-2 EX-3.1 5 AMENDED & RESTATED CERT OF INCORPORATION EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION of HCC INDUSTRIES INC. HCC INDUSTRIES INC., a Delaware corporation, (hereinafter referred to at the "Corporation") hereby certifies as follows: 1. The name of the Corporation is HCC INDUSTRIES INC. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on July 23, 1985 under the name HCC Industries Delaware, Inc. 2. This Amended and Restated Certificate of Incorporation of HCC INDUSTRIES INC. amends and restates the provisions of the Restated Certificate of Incorporation of the Corporation, filed with the Secretary of State of the State of Delaware on February 14, 1997, and was duly adopted in accordance with Section 242 and 245 of the General Corporation law of the State of Delaware (the "DGCL") and by written consent of the Stockholders in accordance with Section 228 of the DGCL and the Restated Certificate of Incorporation as heretofore amended. 3. Effective upon the filing of this Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (such time referred to herein as the "Effective Time"), a reclassification of the Corporation's Common Stock, par value $.10 per share (the "Common Stock") shall occur as follows: (i) the 110,484.0644 issued and outstanding shares of the Common Stock evidenced by Certificate Numbers 8304, 8307, 8302, 8308, 8311, 8312, 8309, 8310, 8313, 8316, 8314, 8315 shall be converted, without any action on the part of the holders thereof, into 110,484.0644 shares of Class A Common Stock, par value $.10 per share ("Class A Common Stock") (ii) the 11,393.7543 issued and outstanding shares of Common Stock evidenced by Certificate Numbers 8303 and 8305 shall be converted, without any action on the part of the holder thereof, into 7,077.2627 shares of Class B Common Stock, par value $.10 per share (the "Class B Common Stock") and 4,316.4916 shares of Class C Common Stock, par value $.10 per share (the "Class C Common Stock") and (iii) the 21,691.18132 issued and outstanding shares of Common Stock evidenced by Certificate Numbers 8301 and 8306 shall be converted, without any action on the part of the holder thereof, into 21,211.5712 shares of Class B Common Stock and 479.6102 shares of Class D Common Stock, par value $.10 per share (the "Class D Common Stock"). From and after the Effective Time, the holders of outstanding certificates which immediately prior to the Effective Time represented shares of Common Stock ("Certificates") shall cease to have any rights with respect to such shares and, until Certificates are surrendered and exchanged in the manner provided for herein, each such Certificate shall, after the Effective Time, be deemed to represent only the right to receive a certificate for a number of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock or Class D Common Stock, as the case may be, equal to the number of shares of Common Stock represented by such Certificate. No holder of a Certificate shall be entitled to receive any dividends or other distributions in respect of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock or Class D Common Stock, as the case may be, into which the shares of Common Stock were converted at the Effective Time until surrender of such holder's Certificate for a certificate or certificates representing shares of Class A Common Stock, Class B Common Stock, Class C Common Stock or Class D Common Stock, as the case may be, but upon such surrender, there shall be paid to the holder the amount of any dividends or other distributions (without interest)(which theretofore became payable to holders who were holders of record of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock or Class D Common Stock, as the case may be, after Effective Time, but which were not paid by reason of the foregoing, with respect to the number of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock or Class D Common Stock, as the case may be, represented by the certificate or certificates issued upon such surrender. From and after the Effective Time, the Corporation shall be entitled to treat any unsurrendered Certificates as evidencing the ownership of the number of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock or Class D Common Stock, as the case may be, into which the shares represented by such Certificates shall have been converted, notwithstanding the failure to surrender such Certificates. Upon the surrender to the 2 Corporation of all Certificates held by a holder of shares of Common Stock, together with such stock transfer powers and other documents reasonably requested by the Corporation, the holder of such Certificates shall receive therefor a certificate for a number of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock or Class D Common Stock, as the case may be, equal to the number of shares of Common Stock represented by such Certificates. The Corporation's Restated Certificate of Incorporation, as heretofore amended, is hereby restated, integrated and amended to read in its entirety as follows: FIRST: The name of the Corporation is HCC INDUSTRIES INC. SECOND: The registered office of the Corporation in the State of Delaware is located at: 1013 Centre Road, Wilmington, County of New Castle 19805. The registered agent of the Corporation at that address is Corporation Service Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "DGCL"). FOURTH: The following provisions are inserted regarding the capital stock of the Corporation: A. Authorized Shares. The total number of shares which the ----------------- Corporation is authorized to issue is 550,000 shares. All 550,000 shares shall be designated Common Stock, par value $.10 per share (the "Common Stock"), of ------------ which 110,484.0644 shares shall be initially designated Class A Common Stock (the "Class A Common Stock"), 28,288.8339 shares shall be initially designated -------------------- Class B Common Stock (the "Class B Common Stock"), 4,316.4916 shares shall be -------------------- initially designated Class C Common Stock (the "Class C Common Stock") and -------------------- 479.6102 shares shall be initially designated Class D Common Stock (the "Class D ------- Common Stock"). The remaining 406,431 shares of Common Stock shall initially be - ------------ undesignated as to class and may be designated as to class in accordance with Section B.7 hereof. 3 The terms, limitations and relative rights and preferences of the classes and certain series of Common Stock of the Corporation are as hereinafter set forth. B. Powers, preferences and rights of the Common Stock. The -------------------------------------------------- powers, preferences and rights of the Class A Common Stock, the Class B Common Stock, the Class C Common Stock and the Class D Common Stock and the qualifications, limitations or restrictions thereof are as follows: 1. Voting. ------ (a) Class A Common Stock. Each share of Class A Common -------------------- Stock shall entitle the holder thereof to one (1) vote. (b) Class B Common Stock. Each share of Class B Common -------------------- Stock shall entitle the holder thereof to one (1) vote. (c) Class C Common Stock. The shares of Class C Common -------------------- Stock shall be non-voting shares except to the extent that a class vote is required under the DGCL and except that the consent of the holders of at least a majority of the shares of Class C Common Stock then outstanding shall be necessary to permit, effect or validate (x) the issuance of any series of capital stock of the Corporation, other than the Class A Common Stock, the Class B Common Stock, the Class C Common Stock or the Class D Common Stock, which is on a parity with or senior as to liquidation to the Class C Common Stock; or (y) the repeal, amendment or other change in this First Amended and Restated Certificate of Incorporation in a manner which would increase or decrease the aggregate number of authorized shares of Class C Common Stock, increase or decrease the par value per share of the Class C Common Stock, or alter or change the powers, preferences or rights of the Class C Common Stock in any material respect. (d) Class D Common Stock. Each share of Class D Common -------------------- Stock shall entitle the holder thereof to ten (10) votes. 4 2. Conversion of Shares. -------------------- (a) Conversion of Class B Common Stock ---------------------------------- (i) Except as provided in Section B.2(b) of this Article Fourth, upon the transfer of any shares of Class B Common Stock to any holder who is subject to, or whose Affiliates (as defined in Regulation Y of the Board of Governors of the Federal Reserve System (12 C.F.R. 225) or any successor to such regulation ("Regulation Y")) are subject ------------ to the limitation of the Bank Holding Company Act of 1956, as amended, or the International Banking Act of 1978, as amended, (together, the "Banking Regulations") (such holder shall be hereinafter referred to as ------------------- a "Regulated Holder"), such Regulated Holder of the Class B Common Stock ---------------- so transferred shall have the right, but not the obligation, to convert such shares of Class B Common Stock to shares of Class C Common Stock on a one share for one share basis by providing written notice to the Corporation (the "Conversion to Non-Voting") and each such conversion ------------------------ shall be deemed to have been effected as of the close of business on the date on which such notice has been received. (ii) Upon the Conversion to Non-Voting of the shares of Class B Common Stock pursuant to Section B.2 (a)(i) of this Article Fourth, (such number of shares so converted are hereinafter referred to as the "Conversion Number") a number of shares of Class B Common Stock, equal to the lesser of (x) the number of outstanding shares of Class B Common Stock held by persons who are not Regulated Holders or (y) the quotient obtained by dividing the Conversion Number by 9 (nine), shall be converted into shares of Class D Common Stock as described in the following sentences. The holder of the shares subject to the Conversion to Non-Voting shall specify in writing to the Corporation the names (and amounts) of any affiliate of such holder (which designated affiliate is permitted by the Banking Regulations to own such shares of Class D Common Stock) whose shares of Class B Common Stock are to be converted into Class D Common Stock pursuant to this clause (ii) which specification shall be approved by each holder of Class B Common Stock specified 5 therein; provided that if such specification is not made or approved, the shares of Class B Common Stock to be converted into Class D Common Stock pursuant to this Section B.2(a)(ii) shall be allocated among all of the holders of Class B Common Stock, other than to any holder of Class B Common Stock who is a Regulated Holder and would be in violation of the Banking Regulations, pro-rata based on their relative ownership of Class B Common Stock. (b) Conversion of Class C Common Stock. In connection with ---------------------------------- the occurrence (or the expected occurrence, as described herein) of any of the following events (each such event shall be hereinafter referred to as a "Conversion Event"): ---------------- (i) any registered underwritten public offering of common equity securities of the Corporation; or (ii) any sale of securities of the Corporation to a person or group of related persons (such sale being within the meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) if, ------------ after such sale, such person or group of persons in the aggregate would own or control securities of the Corporation (excluding any shares of Class C Common Stock being converted and disposed of in connection with such Conversion Event) which possess in the aggregate, the ordinary voting power to elect a majority of the Corporation's directors; or (iii) any sale of securities of the Corporation to a person or group of persons (such sale being within the meaning of the Exchange Act) if, after such sale, such person or group of persons would not, in the aggregate, own, control or have the right to acquire more than two percent (2%) of the outstanding securities of any class of voting securities of the Corporation; or (iv) a merger, consolidation or similar transaction involving the Corporation if, after such transaction, a person or group of persons in the aggregate would own or control securities of the Corporation which possess in the aggregate 6 the ordinary voting power to elect a majority of the Corporation's directors (provided that the transaction has been approved by the Board of Directors of the Corporation or a committee thereof and by the holders of a majority of the Common Stock then outstanding (excluding all shares of Class C Common Stock)); or each holder of shares of Class C Common Stock shall be entitled at any time and from time to time to convert into an equal number of shares of Class A Common Stock any of such holder's Class C Common Stock which are being (or are expected to be) distributed, disposed of or sold in connection with such Conversion Event. Each holder of shares of Class C Common Stock shall be entitled to convert its shares of Class C Common Stock in connection with any Conversion Event if such holder reasonably believes that such Conversion Event shall be consummated. A written request for conversion from any holder of Class C Common Stock to the Corporation stating such holder's reasonable belief that a Conversion Event shall occur shall be a conclusive determination thereof and shall obligate the Corporation to effect such conversion in a timely manner so as to enable each such holder to participate in such Conversion Event. The Corporation shall not cancel the shares of Class C Common Stock so converted before the tenth day following such Conversion Event and shall reserve such shares until such tenth day for possible reissuance. If any shares of Class C Common Stock are converted into shares of Class A Common Stock in connection with a Conversion Event and such shares of Class A Common Stock are not actually distributed, disposed of or sold pursuant to such Conversion Event, such shares of Class A Common Stock shall be promptly converted back into the same number of shares of Class C Common Stock. To the extent that the percentage of Class A Common Stock or Class B Common Stock held by a Regulated Holder is reduced solely as a result of the issuance of additional capital stock of the Corporation, any shares of Class C Capital Stock held by such Regulated Holder after giving effect to such issuance may be converted into shares of Class A Common Stock or Class B Common Stock, on a one share for one share basis, provided that the resulting percentage of Class A Common Stock or Class B Common Stock, respectively, held by such Regulated 7 Holder after such issuance and conversion does not exceed the percentage of Class A Common Stock or Class B Common Stock, respectively, held by such Regulated Holder prior to such issuance and conversion. In addition, if, due to a change of law or regulation, a holder of Class C Common Stock is no longer deemed to be a Regulated Holder, any shares of Class C Common Stock held by such holder may be converted into shares of Class A Common Stock or Class B Common Stock on a one share for one share basis. (c) Conversion of Class D Common Stock. One-ninth of an ---------------------------------- outstanding share of Class D Common Stock shall automatically, without any further act or deed on the part of the Corporation or any other person, be converted into one-ninth of a share of Class A Common Stock or Class B Common Stock respectively, on a one share for one share basis, immediately upon, and concurrently with, the conversion of each share of Class C Common Stock into a share of Class A Common Stock, pursuant to Section B.2(b) of this Article Fourth or in accordance with the last sentence thereof, into Class A Common Stock or Class B Common Stock, as the case may be. If, however, any shares of fraction of a share of Class A Common Stock are converted back into the same number of shares or fraction of a share of Class C Stock because such shares or fraction of a share of Class A Common Stock were not actually distributed, disposed of or sold pursuant to a Conversion Event as provided in Section B.2(b) of this Article Fourth, then any shares or fraction of a share of Class D Common Stock which converted into shares or fraction of a share of Class A Common Stock pursuant to this Section B.2(c) shall be promptly converted back into the same number of shares or fraction of a share of Class D Common Stock. Unless otherwise specified in a writing delivered by the holder of the shares or fraction of a share of Class C Common Stock being converted pursuant to Section B.2(b) of this Article Fourth, the number of shares or fraction of a share of Class D Common Stock of each holder of Class D Common Stock which shall be converted into a share or fraction of a share of Class A Common Stock or Class B Common Stock pursuant to this Section B.2(c) shall be determined by multiplying the aggregate number of shares or fractions of a share of Class D Common Stock to be converted pursuant to this Section B.2(c) times a fraction, the numerator of which is the number of shares of Class D Common Stock held by such holder, and the denominator of 8 which is the total number of shares of Class D Common Stock outstanding. In addition, shares of Class D Common Stock may be converted into shares of Class A Common Stock, at the option of the holder thereof, at any time or from time to time, on a one share for one share basis. (d) Conversion of Class B Common Stock. Shares of Class B ---------------------------------- Common Stock may be converted into shares of Class A Common Stock, at the option of the holder thereof, at any time or from time to time, on a one share for one share basis. (e) Conversion Procedure Issuance of Certificates. --------------------------------------------- (i) Unless otherwise provided for in connection with a Conversion Event, each conversion of shares of Class C Common Stock into shares of Class A Common Stock or Class B Common Stock pursuant to Section B.2(b) and each conversion of Class B Common Stock into shares of Class A Common Stock pursuant to B.2(d) shall be effected by the surrender of the certificates representing the shares to be converted at the principal office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of the Class C Common Stock and Class B Common Stock) at any time during normal business hours, together with a written notice by the holder of such shares of Class C Common Stock or Class B Common Stock stating that such holder desires to convert such shares. Such notice shall also state the name or names (with addresses) and denominations in which the certificate or certificates for such shares of Class A Common Stock or Class B Common Stock are to be issued and shall include instructions for reasonable delivery thereof. Each conversion of Class B Common Stock to Class A Common Stock and, unless otherwise provided for in connection with a Conversion Event, each conversion of Class C Common Stock to Class A Common Stock or Class B Common Stock shall be deemed to have been effected as of the close of business on the date on which such certificates representing such Class B Common Stock or Class C Common Stock have been surrendered and such notice has been received. At such time, the rights of the holder of the surrendered shares 9 of Class B Common Stock or Class C Common Stock as such holder shall cease, and the person in whose name the certificates for the shares of Class A Common Stock or Class B Common Stock will be issued upon such conversion shall be deemed to have become the holder of record of the shares of Class A Common Stock or Class B Common Stock represented thereby. Promptly after the surrender of the certificates and the receipt of written notice, the Corporation shall issue and deliver in accordance with the surrendering holder's instructions, the certificates for the shares of Class A Common Stock or Class B Common Stock issuable upon such conversion, and certificates representing any surrendered shares of Class B Common Stock or Class C Common Stock which were delivered to the Corporation in connection with such conversion but which were not requested to be converted and, therefore, were not converted. (ii) Each conversion of shares of Class B Common Stock into shares of Class C Common Stock or Class D Common Stock pursuant to Section B.2(a) of this Article Fourth shall be effected by the surrender of the certificates representing the shares of Class B Common Stock to be converted at the principal office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of the Class B Common Stock) at any time during normal business hours, together, in the case of the conversion of Class B Common Stock into Class C Common Stock pursuant to Section B.2(a)(i), with a written notice by the holder of such shares of Class B Common Stock stating that such holder desires to convert such shares; provided, that the conversion of shares of Common Stock from one -------- class to another pursuant to Section B.2(a) of this Article Fourth shall be deemed effective as provided in Section B.2(a)(i) of this Article Fourth whether or not the certificates representing such shares indicate the proper class designation. (iii) Each holder of any shares of Class D Common Stock which are automatically converted into shares of Class A Common Stock pursuant to Section B.2(c) of this Article Fourth shall tender certificates representing such shares to the Corporation 10 promptly for reissuance with the post-conversion class designation; provided, that the conversion of Class D Common Stock into Class A -------- Common Stock pursuant to Section B.2(c) of this Article Fourth shall occur automatically and be effective whether or not the certificates representing such shares indicate the proper class designation. (iv) The issuance of certificates for any class of Common Stock upon conversion from any other class of Common Stock shall be made without charge to the holders of such Common Stock for any documentary, stamp or similar issue or transfer tax due on the issue of Common Stock upon the conversion. The holder, however, shall pay to the Corporation the amount of any tax which is due (or shall establish to the satisfaction of the Corporation the payment thereof or that no such payment is due) if the shares are to be issued in the name other than the name of such holder. (v) The Corporation shall reserve and at all times shall have reserved out of its authorized but unissued Common Stock solely for the purpose of issuance upon the conversion of any shares of Common Stock in accordance with this Section B.2, such number of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock and Class D Common Stock respectively, as may be issuable upon such conversion. All shares of Common Stock issuable upon any conversion pursuant to this Section B.2 shall, when issued, constitute duly and validly issued, fully paid and nonassessable shares of Common Stock. The Corporation shall use its reasonable best effort to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock of the relevant class may be listed (except for official notice of issuance which shall be immediately transmitted by the Corporation upon issuance). (vi) The Corporation shall not close its books against the transfer of Common Stock in any manner which would interfere with the timely conversion of any Common Stock pursuant to this Section 11 B.2. The Corporation shall assist and cooperate with any holder of shares of Common Stock required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Common Stock hereunder (including, without limitation, making any filings required to be made by the Corporation). 3. Dividends. Subject to the rights of the holders of any --------- other class or series of stock having a preference as to dividends over the Common Stock then outstanding, the holders of Common Stock will be entitled to receive, to the extent permitted by law, and to share equally and ratably, share for share, such dividends as may be declared from time to time by the Board of Directors. No dividends shall be paid on the Class A Common Stock, the Class B Common Stock, the Class C Common Stock or the Class D Common Stock, whether in cash, property or shares of stock of the Corporation, unless the same dividend shall be payable on each share of Class A Common Stock, Class B Common Stock, Class C Common Stock and Class D Common Stock; provided that if dividends so -------- declared are payable in shares of Common Stock, dividends will be declared which are payable at the same rate on all series of Common Stock, and the dividends on the Class A Common Stock will be paid in Class A Common Stock, the dividends on the Class B Common Stock will be paid in Class B Common Stock, the Dividends on the Class C Common Stock will be paid in Class C Common Stock, and the Dividends on the Class D Common Stock will be paid in Class D Common Stock. 4. Other Powers, Preferences and Rights. ------------------------------------ (a) Except as otherwise required by law or expressly provided for in this First Amended and Restated Certificate of Incorporation, the powers, preferences and rights of the Class A Common Stock, the Class B Common Stock, the Class C Common Stock, and the Class D Common Stock and the qualifications, limitations or restrictions thereof, shall in all respects be identical. 5. Stock Adjustments. The Corporation shall not be a party ----------------- to or effect any merger, consolidation, reorganization, reclassification or recapitalization pursuant to which any Regulated Holder would be required to receive, or which would result in such Regulated 12 Holder owning or controlling any of the following if, and to the extent, it would constitute a violation of the Banking Regulations: (a) any voting securities which would cause such holder to hold more than 4.999% (or 24.999% in the case of Windward/Merchant, L.P. either alone or in the aggregate with Windward/Merban, L.P.) of the outstanding shares of any Class of voting securities, (b) any securities convertible into voting securities which if such conversion took place would cause such holder to hold more than 4.999% (or 24.999% in the case of Windward/Merchant, L.P.) of the outstanding shares of any Class of voting securities other than securities which are specifically provided to be convertible only in the event that such conversion may occur without any violation of Regulation Y or (c) with Windward/Merchant, L.P., Windward/Merban, L.P. in the aggregate more than 24.999% of the total outstanding shares of Common Stock. The term "Class" shall have the meaning determined by reference to Regulation Y and all authoritative interpretations of Regulation Y. In the event of any merger, consolidation, reorganization, reclassification or recapitalization, effective provision shall be made in the certificate of incorporation of the resulting or surviving corporation or otherwise for the protection of the conversion rights of the Class A Common Stock, Class B Common Stock, Class C Common stock and Class D Common Stock that shall be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of Class A Common Stock, Class B Common Stock, Class C Common Stock or Class D Common Stock, respectively. In case securities or property other than Class A Common Stock, Class B Common Stock, Class C Common Stock or Class D Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this Section B.5 shall be deemed to apply, so far as appropriate and as nearly as may be, to such other securities or property. Subject to the foregoing, the Corporation will not be a party to or effect any merger, consolidation, reorganization, reclassification or recapitalization pursuant to which the holders of any class of Common Stock or any Regulated Holder of shares of any class of Common Stock is treated adversely relative to the other holders of Common Stock. 6. Liquidation. In the event of any liquidation, ----------- dissolution or winding up of the affairs of 13 the Corporation, whether voluntary or otherwise, the holders of Class A Common Stock, Class B Common Stock, Class C Common Stock and Class D Common Stock shall be entitled to share ratably according to the number of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock and Class D Common stock held by them in the remaining assets of the Corporation available for distribution to its stockholders. 7. Designation of Additional Shares of Class A Common -------------------------------------------------- Stock, Class B Common Stock, Class C Common Stock and Class D Common Stock. (a) - -------------------------------------------------------------------------- The Board of Directors of the Corporation is expressly authorized at any time, and from time to time, to provide for the issuance of Class A Common Stock, Class B Common Stock, Class C Common Stock or Class D Common Stock, at any time, and from time to time, from shares of Common Stock not previously designated as to class as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors. (b) Each share of Common Stock issued by the Corporation, if reacquired by the Corporation (whether by repurchase or other means, including conversion by the holder thereof), shall, except to the extent prohibited by the DGCL, upon such reacquisition resume the status of authorized and unissued shares of Common Stock, undesignated as to class and available for designation and issuance by the Corporation in accordance with paragraph (a) of this Section B.7. FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: A. Management of Corporation. The business and affairs of the ------------------------- Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL, this First Amended and Restated Certificate of Incorporation, and any By-Laws adopted by the stockholders; 14 provided that no By-Laws hereafter adopted by the stockholders shall - -------- invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted. B. Number and Election of Directors. The number of directors of -------------------------------- the Corporation shall be as from time to time fixed by, or in the manner provided in, the By-Laws of the Corporation. Election of directors need not be by written ballot unless the By-Laws so provide. C. Special Voting Requirements of Board of Directors and ----------------------------------------------------- Committee of the Board of Directors. In addition to any requirement under the - ----------------------------------- DGCL, except as specifically provided for in the Stockholders Agreement, dated as of February 14, 1997 (the "Stockholders Agreement"), among the Company, Windward Capital Associates, L.P. ("Windward"), Windward/Park HCC, L.L.C., Windward/Merchant, L.P., Windward/Merban, L.P., the members of the Company's management set forth therein and such other persons or entities who or which become parties to such Stockholders Agreement pursuant to the terms thereof, the approval of the members of the Board of Directors (or any committee of the Board of Directors) that are Windward Nominees (as such term is defined in the Stockholders Agreement) acting by majority vote (or by written consent) is required in order for the Board of Directors (or any committee of the Board of Directors) to take any action or for the Company to take any action for which Board of Directors approval is required. Any committee of the Board of Directors shall include at least one Windward Nominee. D. Amendment, etc. of this First Amended and Restated -------------------------------------------------- Certificate of Incorporation. Except as provided herein, the Corporation - ---------------------------- reserves the right to amend, alter, change or repeal any provision contained in this First Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. E. Amendment of By-Laws, etc. Except as provided herein, the ------------------------- Board of Directors shall have concurrent power with the stockholders to make, alter, amend, change, add to or repeal the By-Laws of the Corporation. 15 F. Action by Written Consent. Any action required or permitted ------------------------- to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of the stockholders of the Corporation; provided that the -------- stockholders of the Corporation may take action by written consent in lieu of a meeting to the extent that any such written consent (a) is signed by Windward or its Permitted Transferees (as defined in the Stockholders Agreement) (but only if such signing party is at such time a stockholder of the Corporation entitled to vote on such matter) and (b) is otherwise permitted pursuant to the provisions of the DGCL. G. Meetings of Stockholders; Books of the Corporation. Meetings -------------------------------------------------- of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the DGCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. SIXTH: No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of the foregoing provision of this Article SIXTH shall not adversely affect any right or protection of a director of the Corporation in respect of any act or omission occurring prior to the time of such repeal or modification. The provisions of this Article SIXTH shall not be deemed to limit or preclude indemnification of a director by the Corporation for any liability as a director that has not been eliminated by the provisions of this Article SIXTH. 16 IN WITNESS WHEREOF, this First Amended and Restated Certificate of Incorporation is executed this ___ day of March, 1997. HCC INDUSTRIES INC. By:____________________________ Name: Andrew Goldfarb Title: Chief Executive Officer EX-3.2 6 AMENDED & RESTATED BY-LAWS OF THE COMPANY EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF HCC INDUSTRIES INC., a Delaware corporation Dated: February 14, 1997 Table of Contents
Page ---- ARTICLE I MEETINGS OF STOCKHOLDERS........................................ 1 Section 1. Place of Meeting................................................ 1 Section 2. Annual Meeting.................................................. 1 Section 3. Special Meetings................................................ 1 Section 4. Notice of Meetings.............................................. 2 Section 5. Voting List..................................................... 2 Section 6. Quorum.......................................................... 2 Section 7. Adjournments.................................................... 2 Section 8. Action at Meetings.............................................. 3 Section 9. Voting and Proxies.............................................. 3 Section 10. Action Without Meeting.......................................... 3 ARTICLE II DIRECTORS....................................................... 4 Section 1. Number, Election, Tenure and Qualification...................... 4 Section 2. Special Voting Requirements of the Board of Directors and Committees of the Board of Directors......................................... 4 Section 3. Enlargement..................................................... 4 Section 4. Vacancies....................................................... 4 Section 5. Resignation and Removal......................................... 5 Section 6. General Powers.................................................. 5 Section 7. Chairman of the Board........................................... 5 Section 8. Place of Meetings............................................... 5 Section 9. Regular Meetings................................................ 5 Section 10. Special Meetings................................................ 5 Section 11. Quorum, Action at Meeting, Adjournments......................... 6 Section 12. Action by Consent............................................... 6 Section 13. Telephonic Meetings............................................. 6 Section 14. Committees...................................................... 7 Section 15. Compensation.................................................... 7 ARTICLE III OFFICERS........................................................ 8 Section 1. Enumeration..................................................... 8 Section 2. Election........................................................ 8 Section 3. Tenure.......................................................... 8
i
Page ---- Section 4. President........................................................ 9 Section 5. Vice-Presidents.................................................. 9 Section 6. Secretary........................................................ 9 Section 7. Assistant Secretaries............................................ 10 Section 8. Chief Financial Officer.......................................... 10 Section 9. Assistant Treasurer.............................................. 11 Section 10. Bond ............................................................ 11 ARTICLE IV NOTICES.......................................................... 11 Section 1. Delivery......................................................... 11 Section 2. Waiver of Notice................................................. 12 ARTICLE V INDEMNIFICATION.................................................. 12 Section 1. Power to Indemnify in Actions, Suits or Proceedings Other Than Those by or in the Right of the Corporation.............................. 12 Section 2. Power to Indemnify in Actions, Suits or Proceedings or in the Right of the Corporation................................................. 13 Section 3. Authorization of Indemnification................................. 13 Section 4. Good Faith Defined............................................... 14 Section 5. Indemnification by a Court....................................... 14 Section 6. Expenses Payable in Advance...................................... 15 Section 7. Non-Exclusivity and Survival of Indemnification.................. 15 Section 8. Insurance........................................................ 15 Section 9. Meaning of "Corporation" for Purposes of Article V............... 16 Section 10. Term of Indemnification.......................................... 16 Section 11. Severability..................................................... 16 Section 12. Intent of Article................................................ 16 ARTICLE VI CAPITAL STOCK.................................................... 17 Section 1. Certificates of Stock............................................ 17 Section 2. Lost Certificates................................................ 17 Section 3. Transfer of Stock................................................ 18 Section 4. Record Date...................................................... 18 Section 5. Registered Stockholders.......................................... 18
ii
Page ---- ARTICLE VII CERTAIN TRANSACTIONS............................................ 19 Section 1. Transactions with Interested Parties............................ 19 Section 2. Quorum.......................................................... 20 ARTICLE VIII GENERAL PROVISIONS.............................................. 20 Section 1. Dividends....................................................... 20 Section 2. Reserves........................................................ 20 Section 3. Checks.......................................................... 20 Section 4. Fiscal Year..................................................... 20 Section 5. Seal .......................................................... 20 Section 6. Registered Office............................................... 20 Section 7. Other Offices................................................... 21 ARTICLE IX AMENDMENTS................................................ 21 Addendum Register of Amendments to the Restated Bylaws
iii AMENDED AND RESTATED BYLAWS OF HCC INDUSTRIES INC. * * * * * ARTICLE I MEETINGS OF STOCKHOLDERS Section 1. Place of Meeting. All meetings of the stockholders shall be ---------------- held at such place within or without the State of Delaware as may be fixed from time to time by the Board of Directors (hereinafter called the "Board") or the chief executive officer, or if not so designated, at the registered office of the corporation. Section 2. Annual Meeting. The annual meeting of the stockholders for -------------- the election of directors, and for the transaction of such other business as may properly come before the meeting, shall be held at such place, date and hour as shall be fixed by the Board and designated in the notice or waiver of notice thereof; provided, however, that no annual meeting need be held if all -------- ------- actions, including the election of directors, required by the General Corporation Law of the State of Delaware (the "GCL") to be taken at a stockholders' annual meeting are taken by written consent in lieu of meeting in accordance with the certificate of incorporation and pursuant to Section 10 of this Article I. Section 3. Special Meetings. Special meetings of the stockholders, for ---------------- any purpose or purposes, may, unless otherwise prescribed by statute or by the certificate of incorporation, be called by the Board or the chief executive officer and shall be called by the chief executive officer or secretary at the request in writing of a majority of the Board, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Business 1 transacted at any special meeting shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. Section 4. Notice of Meetings. Except as otherwise provided by law, ------------------ written notice of each meeting of stockholders, annual or special, 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 given not less than ten or more than sixty days before the date of the meeting, to each stock- holder entitled to vote at such meeting. Section 5. Voting List. The officer who has charge of the stock ledger ----------- of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city or town where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 6. Quorum. The holders of a majority of the stock issued and ------ outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute, the certificate of incorporation or these bylaws. Section 7. Adjournments. Any meeting of stockholders may be adjourned ------------ from time to time to any other time and to any other place at which a meeting of stockholders may be held under these bylaws, which time and place shall be announced at the meeting, by a majority of the stockholders present in person or represented by proxy at the meeting and entitled to vote, though less than a quorum, or, if no stockholder is present or represented 2 by proxy, by any officer entitled to preside at or to act as secretary of such meeting, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 8. Action at Meetings. When a quorum is present at any meeting, ------------------ the vote of the holders of a majority of the stock present in person or represented by proxy and entitled to vote on the question shall decide any question brought before such meeting, unless the question is one upon which, by express provision of law, the certificate of incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 9. Voting and Proxies. Unless otherwise provided in the ------------------ certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote for each share of capital stock having voting power held of record by such stockholder. Each stockholder entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons to act for him by proxy, but, except in the case of any proxy granted pursuant to the Stockholders Agreement, dated as of February 14, 1997 (the "Stockholders Agreement"), among HCC Industries Inc., Windward Capital Associates, L.P. ("Windward"), Windward/Park HCC, L.P., Windward/Merchant, L.P., Windward/Merban, L.P., the members of HCC Industries Inc.'s management set forth therein and such other persons or entities who or which become parties to such Stockholders Agreement pursuant to the terms thereof, no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 10. Action Without Meeting. Except as permitted by the GCL or by ---------------------- the certificate of incorpora-tion, no action may be taken by stockholders of the 3 corporation except at an annual or special meeting of the stockholders of the corporation. ARTICLE II DIRECTORS Section 1. Number, Election, Tenure and Qualification. The number of ------------------------------------------ directors which shall constitute the whole Board shall be nine (9). The directors shall be elected at the annual meeting or at any special meeting of the stockholders, except as provided in Section 4 of this Article. Each director shall hold office until his successor is elected and qualified or until such director's earlier resignation or removal. Directors need not be stockholders. Section 2. Special Voting Requirements of the Board of Directors and --------------------------------------------------------- Committees of the Board of Directors. In addition to any requirement under the - ------------------------------------ GCL, except as specifically provided for in the Stockholders Agreement, the approval of the members of the Board (or any committee of the Board) that are Windward Nominees (as such term is defined in the Stockholders Agreement) acting by majority vote (or by written consent) is required in order for the Board (or any committee of the Board) to take any action or for the corporation to take any action for which Board approval is required. Section 3. Enlargement. The number of the Board may be increased at ----------- any time by action of the Board. Section 4. Vacancies. Vacancies and newly created directorships --------- resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. If there are no directors in office, then an election of directors may be held in the manner provided by statute. In the event of a vacancy in the Board, the remaining directors, except as otherwise provided by law or these bylaws, may exercise the powers of the full Board until the vacancy is filled. Section 5. Resignation and Removal. Any director may resign at any time ----------------------- upon written notice to the corporation at its principal place of business or to the chief executive officer or secretary. Such resignation shall 4 be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Any director or the entire Board may be removed, with or without cause, by vote of the holders of a majority of the shares then entitled to vote at an election of directors, unless otherwise specified by law or the certificate of incorporation. Section 6. General Powers. The business and affairs of the corporation -------------- shall be managed by its Board, which may exercise all powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders. Section 7. Chairman of the Board. If the Board appoints a chairman of --------------------- the Board, he shall, when present, preside at all meetings of the stockholders and the Board. He shall perform such duties and possess such powers as are customarily vested in the office of the chairman of the Board or as may be vested in him by the Board. Section 8. Place of Meetings. The Board may hold meetings, both regular ----------------- and special, either within or without the State of Delaware. Section 9. Regular Meetings. Regular meetings of the Board may be held ---------------- without notice at such time and at such place as shall from time to time be determined by the Board; provided, that any director who is absent when such a -------- determination is made shall be given prompt notice of such determination. A regular meeting of the Board may be held without notice immediately after and at the same place as the annual meeting of stockholders. Section 10. Special Meetings. Special meetings of the Board may be ---------------- called by the chief executive officer, secretary, or on the written request of two or more directors, or by one director in the event that there is only one director in office. Two days' notice to each director, either personally or by telegram, cable, telecopy, commercial delivery service, telex or similar means sent to his business or home address, or three days' notice by written notice deposited in the mail, shall be given to each director by the secretary or by 5 the officer or one of the directors calling the meeting. A notice or waiver of notice of a meeting of the Board need not specify the purposes of the meeting. Section 11. Quorum, Action at Meeting, Adjournments. At all meetings of --------------------------------------- the Board, a majority of directors then in office, of which at least one member is a Windward Nominee, but in no event less than one third of the entire Board, shall constitute a quorum for the transaction of business and, subject to Section 2 of this Article II, the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board, except as may be otherwise specifically provided by law or by the certificate of incorporation. For purposes of this section, the term "entire Board" shall mean the number of directors last fixed by the stockholders or directors, as the case may be, in accordance with law and these bylaws; provided, however, that if -------- ------- less than all the number so fixed of directors were elected, the "entire Board" shall mean the greatest number of directors so elected to hold office at any one time pursuant to such authorization. If a quorum shall not be present at any meeting of the Board, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 12. Action by Consent. Unless otherwise restricted by the ----------------- certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 13. Telephonic Meetings. Unless otherwise restricted by the ------------------- certificate of incorporation or these bylaws, members of the Board or of any committee thereof may participate in a meeting of the Board or of any committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in a meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 6 Section 14. Committees. The Board may, by resolution passed by a ---------- majority of the entire Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation, provided, that at -------- least one committee member is a Windward Nominee. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, provided, that -------- only Windward Nominees may replace absent or disqualified committee members who are Windward Nominees. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, that no such committee shall have the -------- power, or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation; and provided further, that unless the resolution -------- ------- designating such committee or the certificate of incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolu- tion adopted by the Board. Each committee shall keep regular minutes of its meetings and make such reports to the Board as the Board may request. Except as the Board may otherwise determine, any committee may make rules for the conduct of its business; provided, that unless otherwise provided by the directors or -------- in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these bylaws for the conduct of its business by the Board. Section 15. Compensation. Unless otherwise restricted by the certificate ------------ of incorporation or these bylaws, the Board shall have the authority to fix from time to time the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board and the performance of their responsibilities as directors and may be paid a fixed sum 7 for attendance at each meeting of the Board and/or a stated salary as director. No such payment shall preclude any director from serving the corporation or its parent or subsidiary corporations in any other capacity and receiving compensation therefor. The Board may also allow compensation for members of special or standing committees for service on such committees. ARTICLE III OFFICERS Section 1. Enumeration. The officers of the corporation shall be chosen ----------- by the Board and shall be a president, a secretary and a chief financial officer and such other officers with such titles, terms of office and duties as the Board may from time to time determine, including a chairman of the Board, one or more vice presidents, and one or more assistant secretaries and assistant treasurers. If authorized by resolution of the Board, the chief executive officer may be empowered to appoint from time to time assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these bylaws otherwise provide. Section 2. Election. The Board at its first meeting after each annual -------- meeting of stockholders shall choose a president, a secretary and a chief financial officer. Other officers may be appointed by the Board at such meeting, at any other meeting, or by written consent. Section 3. Tenure. Each officer of the corporation shall hold office ------ until such officer's successor is elected and qualified or until such officer's earlier death, resignation or removal. Any officer may be removed at any time by the affirmative vote of a majority of the Board or a committee duly authorized to do so; provided, however, that any officer appointed by the chief -------- ------- executive officer may also be removed at any time by the chief executive officer. Any vacancy occurring in any office of the corporation may be filled by the Board, at its discretion. Any officer may resign by delivering his written resignation to the corporation at its principal place of business or to the chief executive officer 8 or the secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Section 4. President. The president shall be the chief operating officer --------- of the corporation. He shall also be the chief executive officer unless the Board otherwise provides. The president shall, unless the Board provides otherwise in a specific instance or generally, preside at all meetings of the stockholders and the Board, have general and active management of the business of the corporation and see that all orders and resolutions of the Board are carried into effect. The president shall execute bonds, mortgages, and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board to some other officer or agent of the corporation. Section 5. Vice-Presidents. In the absence of the president or in the --------------- event of the president's inability or refusal to act, the vice-president, or if there be more than one vice-president, the vice-presidents in the order designated by the Board or the chief executive officer (or in the absence of any designation, then in the order determined by their tenure in office) 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. The vice-presidents shall perform such other duties and have such other powers as the Board or the chief executive officer may from time to time prescribe. Section 6. Secretary. The secretary shall have such powers and perform --------- such duties as are incident to the office of secretary. The secretary shall maintain a stock ledger and prepare lists of stockholders and their addresses as required and shall be the custodian of corporate records. The secretary shall attend all meetings of the Board and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board in a book to be kept for that purpose and shall perform like duties for the stand- ing committees when required. The secretary shall give, or cause to be given, notice of all meetings of the 9 stockholders and special meetings of the Board, and shall perform such other duties as may be from time to time prescribed by the Board or chief executive officer, under whose supervision he shall be. The secretary shall have custody of the corporate seal of the corporation and the secretary, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by such officer's signature. Section 7. Assistant Secretaries. The assistant secretary, or if there --------------------- be more than one, the assistant secretaries in the order determined by the Board, the chief executive officer or the secretary (or if there be no such determination, then in the order determined by their tenure in office), shall, in the absence of the secretary or in the event of the secretary's inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board, the chief executive officer or the secretary may from time to time prescribe. In the absence of the secretary or any assistant secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary or acting secretary to keep a record of the meeting. Section 8. Chief Financial Officer. The chief financial officer shall ----------------------- perform such duties and shall have such powers as may be assigned to the chief financial officer by the Board or the chief executive officer. In addition, the chief financial officer shall be deemed to hold, and shall perform such duties and have such powers as are incident to, the office of treasurer. The chief financial officer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board. The chief financial officer shall disburse the funds of the corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the chief executive officer 10 and the Board, when the chief executive officer or Board so requires, an account of all the chief financial officer's transactions as chief financial officer and of the financial condition of the corporation. Section 9. Assistant Treasurer. The assistant treasurer, or if there ------------------- shall be more than one, the assistant treasurers in the order determined by the Board, the chief executive officer or the chief financial officer (or if there be no such determination, then in the order determined by their tenure in office), shall, in the absence of the chief financial officer or in the event of the chief financial officer's inability or refusal to act, perform the duties and exercise the powers of the chief financial officer and shall perform such other duties and have such other powers as the Board, the chief executive officer or the chief financial officer may from time to time prescribe. Section 10. Bond. If required by the Board, any officer shall give the ---- corporation a bond in such sum and with such surety or sureties and upon such terms and conditions as shall be satisfactory to the Board, including without limitation a bond for the faithful performance of the duties of his office and for the restoration to the corporation of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control and belonging to the corporation. ARTICLE IV NOTICES Section 1. Delivery. Whenever, under the provisions of law, or of the -------- certificate of incorporation or these bylaws, written notice is required to be given to any director or stockholder, such notice may be given by mail, addressed to such director or stockholder, at such person's address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Unless written notice by mail is required by law, written notice may also be given by telegram, cable, telecopy, commercial delivery service, telex or similar means, addressed to such director or stockholder at such 11 person's address as it appears on the records of the corporation, in which case such notice shall be deemed to be given when delivered into the control of the persons charged with effecting such transmission, the transmission charge to be paid by the corporation or the person sending such notice and not by the addressee. Oral notice or other in-hand delivery (in person or by telephone) shall be deemed given at the time it is actually given. Section 2. Waiver of Notice. Whenever any notice is required to be given ---------------- under the provisions of law or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V INDEMNIFICATION Section 1. Power to Indemnify in Actions, Suits or Proceedings Other --------------------------------------------------------- Than Those by or in the Right of the Corporation. Subject to Section 3 of this - ------------------------------------------------ Article V, 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 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, or as a trustee, fiduciary or administrator of any pension, profit sharing or other benefit plan for any of the corporation's employees, 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 such person 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 such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, 12 order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful. Section 2. Power to Indemnify in Actions, Suits or Proceedings or in the ------------------------------------------------------------- Right of the Corporation. Subject to Section 3 of this Article V, 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 such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation; provided, however, that no indemnification shall -------- ------- be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. Section 3. Authorization of Indemnification. Any indemnification under -------------------------------- this Article V (unless ordered by a court) shall be made by the corporation unless in the specific case a determination is made that indemnification of the director, officer, employee or agent is not proper in the circumstances because such person has not met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article V, as the case may be. Such determination may be made (i) by the Board by a 13 majority vote of directors who were not parties to such action, suit or proceeding (whether or not such disinterested directors constitute a quorum), (ii) by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, 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 such person in connection therewith, without the necessity of authorization in the specific case. Section 4. Good Faith Defined. For purposes of any determination under ------------------ Section 3 of this Article V, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person's conduct was unlawful, if such person's action is based on the records or books of account of the corporation or another enterprise, or on information supplied to such person by the officers of the corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the corporation or another enterprise or on information or records given or reports made to the corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the corporation or another enterprise. The term "another enterprise" as used in this Section shall mean any other corporation or any partnership, joint venture, trust or other enterprise of which such person is or was serving at the request of the corporation as a director, officer, employee or agent. The provisions of this section shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this Article V, as the case may be. Section 5. Indemnification by a Court. Notwithstanding any contrary -------------------------- determination in the specific case under Section 3 of this Article V, and notwithstanding the absence of any determination thereunder, any director, officer, employee or agent may apply to any court of 14 competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article V. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standards of conduct set forth in Sections 1 or 2 of this Article V, as the case may be. Notice of any application for indemnification pursuant to this Section 5 shall be given to the corporation promptly upon the filing of such application. Section 6. Expenses Payable in Advance. 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 upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this Article V. Section 7. Non-Exclusivity and Survival of Indemnification. The ----------------------------------------------- indemnification and advancement of expenses provided by or granted pursuant to this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, it being the policy of the corporation that indemnification of the persons specified in Sections 1 and 2 of this Article V shall be made to the fullest extent permitted by law. The provisions of this Article V shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article V but whom the corporation has the power or obligation to indemnify under the provisions of the GCL or otherwise. Section 8. 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 is or was serving at the request of the corporation as a director, office, employee or agent of another 15 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 such person's status as such, whether or not the corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article V. Section 9. Meaning of "Corporation" for Purposes of Article V. For -------------------------------------------------- purposes of this Article V, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 10. Term of Indemnification. The indemnification and advancement ----------------------- of expenses provided by or granted pursuant to this Article V shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such person. Section 11. Severability. If any word, clause or provision of this ------------ Article V or any award made hereunder shall for any reason be determined to be invalid, the provisions hereof shall not otherwise be affected thereby but shall remain in full force and effect. Section 12. Intent of Article. The intent of this Article V is to ----------------- provide for indemnification to the fullest extent permitted by Section 145 of the GCL. To the extent that such Section or any successor section may be amended or supplemented from time to time, this Article V shall be amended automatically and construed so as to 16 permit indemnification to the fullest extent from time to time permitted by law. ARTICLE VI CAPITAL STOCK Section 1. Certificates of Stock. Every holder of stock in the --------------------- corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice-chairman of the Board, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by such holder in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified. Section 2. Lost Certificates. The Board may direct a new certificate or ----------------- certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give reasonable evidence of such loss, theft or destruction, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate. 17 Section 3. Transfer of Stock. Upon surrender to the corporation or the ----------------- transfer agent of the corporation of a certificate for shares, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and proper evidence of compliance with other conditions to rightful transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Record Date. In order that the corporation may determine the ----------- stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty days nor less then ten days before the date of such meeting, nor more than sixty days prior to any other action to which such record date relates. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary shall be the day on which the first written consent is expressed. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating to such purpose. Section 5. Registered Stockholders. The corporation shall be entitled ----------------------- to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person 18 registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII CERTAIN TRANSACTIONS Section 1. Transactions with Interested Parties. No contract or ------------------------------------ transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction or solely because any vote is counted for such purpose, if: (a) The material facts as to such person's relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) The material facts as to such person's relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. 19 Section 2. Quorum. Common or interested directors may be counted in ------ determining the presence of a quorum at a meeting of the Board or of a committee which authorizes such contract or transaction. ARTICLE VIII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the --------- corporation, if any, may be declared by the Board at any regular or special meeting or by written consent, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Reserves. The directors may set apart out of any funds of the -------- corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Section 3. Checks. All checks or demands for money and notes of the ------ corporation shall be signed by such officer or officers or such other person or persons as the Board may from time to time designate. Section 4. Fiscal Year. The fiscal year of the corporation shall be ----------- fixed by resolution of the Board. Section 5. Seal. The Board may, by resolution, adopt a corporate seal. ---- The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the word "Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. The seal may be altered from time to time by the Board. Section 6. Registered Office. The registered office of the corporation ----------------- in the State of Delaware shall be at the Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, and the registered agent in charge thereof shall be the Corporation Trust Company. 20 Section 7. Other Offices. The corporation may also have an office or ------------- offices at any other place or places within or without the State of Delaware. ARTICLE IX AMENDMENTS These bylaws may be altered, amended or repealed or new bylaws may be adopted by the stockholders or by the Board at any regular meeting of the stockholders or of the Board, as the case may be, or at any special meeting of the stockholders or of the Board, as the case may be; provided, however, that in -------- ------- the case of a regular or special meeting of stockholders, notice of such alter- ation, amendment, repeal or adoption of new bylaws shall be contained in the notice of such meeting. 21 Register of Amendments to the Restated Bylaws Date Section Affected Change - ---- ---------------- ------ EX-4.1 7 INDENTURE DATED MAY 6, 1997 EXHIBIT 4.1 HCC INDUSTRIES INC., as Issuer THE SUBSIDIARY GUARANTORS NAMED HEREIN, as Subsidiary Guarantors and IBJ SCHRODER BANK & TRUST COMPANY, as Trustee -------------------- INDENTURE Dated as of May 6, 1997 -------------------- $90,000,000 10 3/4% Senior Subordinated Notes due 2007 TABLE OF CONTENTS -----------------
Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions......................................... 1 SECTION 1.02. Incorporation by Reference of TIA................... 23 SECTION 1.03. Rules of Construction............................... 23 ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating..................................... 24 SECTION 2.02. Execution and Authentication; Aggregate Principal Amount.................................... 26 SECTION 2.03. Registrar and Paying Agent.......................... 26 SECTION 2.04. Paying Agent To Hold Assets in Trust................ 27 SECTION 2.05. Noteholder Lists.................................... 27 SECTION 2.06. Transfer and Exchange............................... 28 SECTION 2.07. Replacement Notes................................... 28 SECTION 2.08. Outstanding Notes................................... 29 SECTION 2.09. Treasury Notes...................................... 29 SECTION 2.10. Temporary Notes..................................... 29 SECTION 2.11. Cancellation........................................ 30 SECTION 2.12. Defaulted Interest.................................. 30 SECTION 2.13. CUSIP Number........................................ 30 SECTION 2.14. Deposit of Moneys................................... 30 SECTION 2.15. Restrictive Legends................................. 31 SECTION 2.16. Book-Entry Provisions for Global Notes.............. 32 SECTION 2.17. Special Transfer Provisions......................... 33 ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee.................................. 35 SECTION 3.02. Selection of Notes To Be Redeemed................... 36 SECTION 3.03. Notice of Redemption................................ 36 SECTION 3.04. Effect of Notice of Redemption...................... 37 SECTION 3.05. Deposit of Redemption Price......................... 37 SECTION 3.06. Notes Redeemed in Part.............................. 38
i ARTICLE FOUR COVENANTS
SECTION 4.01. Payment of Notes.................................... 38 SECTION 4.02. Maintenance of Office or Agency..................... 38 SECTION 4.03. Corporate Existence................................. 38 SECTION 4.04. Payment of Taxes and Other Claims................... 39 SECTION 4.05. Maintenance of Properties and Insurance............. 39 SECTION 4.06. Compliance Certificate; Notice of Default........... 39 SECTION 4.07. Compliance with Laws................................ 40 SECTION 4.08. SEC Reports......................................... 40 SECTION 4.09. Waiver of Stay, Extension or Usury Laws............. 41 SECTION 4.10. Limitation on Restricted Payments................... 41 SECTION 4.11. Limitation on Restrictions on Distributions from Restricted Subsidiaries........................ 44 SECTION 4.12. Limitation on Affiliate Transactions................ 45 SECTION 4.13. Limitation on Indebtedness.......................... 46 SECTION 4.14. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries.................... 47 SECTION 4.15. Limitation on Other Senior Subordinated Debt........ 47 SECTION 4.16. Change of Control................................... 47 SECTION 4.17. Limitation on Sales of Assets and Subsidiary Stock............................................... 49 SECTION 4.18. Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries.......................... 52 SECTION 4.19. Limitation on Liens Securing Subordinated Indebtedness........................................ 53 SECTION 4.20. Future Subsidiary Guarantors........................ 54 SECTION 4.21. Limitation on Designations of Unrestricted Subsidiaries........................................ 54 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets of the Company......................................... 55 SECTION 5.02. Successor Corporation Substituted for the Company............................................. 56 SECTION 5.03. Merger, Consolidation and Sale of Assets of Any Subsidiary Guarantor............................ 56 SECTION 5.04. Successor Corporation Substituted for Subsidiary Guarantor................................ 57 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default................................... 57
ii
SECTION 6.02. Acceleration........................................ 59 SECTION 6.03. Other Remedies...................................... 59 SECTION 6.04. Waiver of Past Defaults............................. 59 SECTION 6.05. Control by Majority................................. 60 SECTION 6.06. Limitation on Suits................................. 60 SECTION 6.07. Rights of Holders To Receive Payment................ 60 SECTION 6.08. Collection Suit by Trustee.......................... 60 SECTION 6.09. Trustee May File Proofs of Claim.................... 61 SECTION 6.10. Priorities.......................................... 61 SECTION 6.11. Undertaking for Costs............................... 62 ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee................................... 62 SECTION 7.02. Rights of Trustee................................... 63 SECTION 7.03. Individual Rights of Trustee........................ 64 SECTION 7.04. Trustee's Disclaimer................................ 65 SECTION 7.05. Notice of Default................................... 65 SECTION 7.06. Reports by Trustee to Holders....................... 65 SECTION 7.07. Compensation and Indemnity.......................... 65 SECTION 7.08. Replacement of Trustee.............................. 66 SECTION 7.09. Successor Trustee by Merger, Etc.................... 67 SECTION 7.10. Eligibility; Disqualification....................... 68 SECTION 7.11. Preferential Collection of Claims Against Company............................................. 68 ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Discharge of Liability on Notes; Defeasance......... 69 SECTION 8.02. Conditions to Defeasance............................ 70 SECTION 8.03. Application of Trust Money.......................... 71 SECTION 8.04. Repayment to Company................................ 71 SECTION 8.05. Indemnity for Government Obligations................ 71 SECTION 8.06. Reinstatement....................................... 72 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders.......................... 72 SECTION 9.02. With Consent of Holders............................. 73 SECTION 9.03. Effect on Senior Indebtedness....................... 74 SECTION 9.04. Compliance with TIA................................. 74
iii
SECTION 9.05. Revocation and Effect of Consents................... 74 SECTION 9.06. Notation on or Exchange of Notes.................... 75 SECTION 9.07. Trustee To Sign Amendments, Etc..................... 75 SECTION 9.08. Payment for Consent................................. 75 ARTICLE TEN SUBORDINATION SECTION 10.01. Notes Subordinated to Senior Indebtedness........... 76 SECTION 10.02. No Payment on Notes in Certain Circumstances........ 76 SECTION 10.03. Payment Over of Proceeds upon Dissolution, Etc. ............................................... 78 SECTION 10.04. Payments May Be Paid Prior to Dissolution........... 79 SECTION 10.05. Subrogation......................................... 80 SECTION 10.06. Obligations of the Company Unconditional............ 80 SECTION 10.07. Notice to Trustee................................... 80 SECTION 10.08. Reliance on Judicial Order or Certificate of Liquidating Agent................................... 81 SECTION 10.09. Trustee's Relation to Senior Indebtedness........... 81 SECTION 10.10. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness........................................ 82 SECTION 10.11. Noteholders Authorize Trustee To Effectuate Subordination of Notes.............................. 82 SECTION 10.12. This Article Ten Not To Prevent Events of Default............................................. 83 SECTION 10.13. Trustee's Compensation Not Prejudiced............... 83 SECTION 10.14. Acceleration of Payment of Notes.................... 83 ARTICLE ELEVEN GUARANTEES SECTION 11.01. Unconditional Guarantee............................ 83 SECTION 11.02. Subordination of Subsidiary Guarantee.............. 85 SECTION 11.03. Severability....................................... 85 SECTION 11.04. Release of Subsidiary Guarantor from the Subsidiary Guarantee............................... 85 SECTION 11.06. Waiver of Subrogation.............................. 87 SECTION 11.07. Execution of Subsidiary Guarantee.................. 87 SECTION 11.08. Waiver of Stay, Extension or Usury Laws............ 88 SECTION 11.09. Effectiveness of Subsidiary Guarantee.............. 88
iv ARTICLE TWELVE SUBORDINATION OF GUARANTEE OBLIGATIONS
SECTION 12.01. Subsidiary Guarantee Obligations Subordinated to Senior Indebtedness of Subsidiary Guarantors.......................................... 88 SECTION 12.02. No Payment on Notes in Certain Circumstances........ 89 SECTION 12.03. Payment Over of Proceeds upon Dissolution, Etc. ............................................... 91 SECTION 12.04. Payments May Be Paid Prior to Dissolution........... 92 SECTION 12.05. Subrogation......................................... 92 SECTION 12.06. Obligations of Subsidiary Guarantor Unconditional....................................... 93 SECTION 12.07. Notice to Trustee................................... 93 SECTION 12.08. Reliance on Judicial Order or Certificate of Liquidating Agent................................... 94 SECTION 12.09. Trustee's Relation to Subsidiary Guarantor's Senior Indebtedness................................. 94 SECTION 12.10. Subordination Rights Not Impaired by Acts or Omissions of Subsidiary Guarantors or Holders of Subsidiary Guarantors' Senior Indebtedness....... 95 SECTION 12.11. Noteholders Authorize Trustee To Effectuate Subordination of Notes.............................. 95 SECTION 12.12. This Article Twelve Not To Prevent Events of Default............................................. 96 ARTICLE THIRTEEN MISCELLANEOUS SECTION 13.01. TIA Controls........................................ 96 SECTION 13.02. Notices............................................. 96 SECTION 13.03. Communications by Holders with Other Holders........ 98 SECTION 13.04. Certificate and Opinion as to Conditions Precedent.. 98 SECTION 13.05. Statements Required in Certificate or Opinion....... 98 SECTION 13.06. Rules by Trustee, Paying Agent, Registrar........... 99 SECTION 13.07. Legal Holidays...................................... 99 SECTION 13.08. Governing Law....................................... 99 SECTION 13.09. No Adverse Interpretation of Other Agreements....... 99 SECTION 13.10. No Recourse Against Others.......................... 99 SECTION 13.11. Successors.......................................... 100 SECTION 13.12. Duplicate Originals................................. 100 SECTION 13.13. Severability........................................ 100 Signatures .................................................... 104 Exhibit A - Form of Initial Note and Guarantor........................... A-1 Exhibit B - Form of Exchange Note and Guarantor.......................... B-1 Exhibit C - Form of Certificate To Be Delivered in
v
Connection with Transfers to Non-QIB Accredited Investors....................................... C-1 Exhibit D - Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S......................... D-1
Note: This Table of Contents shall not, for any purpose, be deemed to be part of this Indenture. vi INDENTURE, dated as of May 6, 1997, among HCC INDUSTRIES INC., a Delaware corporation (the "Company"), HERMETIC SEAL CORPORATION, a Delaware corporation, GLASSEAL PRODUCTS, INC., a New Jersey corporation, SEALTRON INC., a Delaware corporation, SEALTRON ACQUISITION CORP., a Delaware corporation, and HCC INDUSTRIES INTERNATIONAL, a California corporation (the "Subsidiary Guarantors"), and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation, as Trustee (the "Trustee"). The Company has duly authorized the creation of an issue of 10 3/4% Senior Subordinated Notes due 2007 (the "Initial Notes") and, if and when issued pursuant to a registered exchange for the Initial Notes, 10 3/4% Senior Subordinated Exchange Notes due 2007 (the "Exchange Notes," and together with the Initial Notes, the "Notes") and, to provide therefor, the Company and each of the Subsidiary Guarantors has duly authorized the execution and delivery of this Indenture. The Subsidiary Guarantors have agreed to guarantee the Notes on a senior subordinated basis. All things necessary to make the Notes, when duly issued and executed by the Company, and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, have been done. All things necessary to make the Subsidiary Guarantee (as defined herein) when duly issued and executed by each Subsidiary Guarantor and endorsed on the Notes, and authenticated and delivered hereunder, the valid obligations of the Subsidiary Guarantors have been done. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Notes. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. ----------- "Acquired Indebtedness" means Indebtedness of a Person or any of its --------------------- Subsidiaries (i) existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Restricted Subsidiaries or (ii) assumed in connection with the acquisition of assets from such Person and in each case not Incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "Adjusted Maximum Amount" has the meaning provided in Section 11.05. ----------------------- 1 "Affiliate" of any specified Person means (i) any other Person which, --------- directly or indirectly, is in control of, is controlled by or is under common control with such specified Person or (ii) any other Person who is a director or officer (A) of such specified Person, (B) of any subsidiary of such specified Person or (C) of any Person described in clause (i) above. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the provisions described in Sections 4.10 and 4.12 only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Agent" means any Registrar, Paying Agent or co-Registrar. ----- "Agent Members" has the meaning provided in Section 2.16. ------------- "Aggregate Payments" has the meaning provided in Section 11.05. ------------------ "Asset Disposition" means any sale, lease, transfer or other ----------------- disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger or consolidation in excess of $250,000 (each referred to for the purposes of this definition as a "disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary or (iii) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and (iii) above, (w) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (x) for purposes of the covenant described under Section 4.17 only, a disposition that constitutes a Restricted Payment permitted by the covenant described under Section 4.10 or a disposition specifically excepted from the definition of Restricted Payment, (y) settlement, surrender, waiver or release of contract rights or contract, tort or other claims and (z) grant of licenses of intellectual property including patent, trademark and know-how.) "Authenticating Agent" has the meaning provided in Section 2.02. -------------------- "Average Life" means, as of the date of determination, with respect to ------------ any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. 2 "Bank Indebtedness" means all Obligations pursuant to the Revolving ----------------- Credit Facility and reimbursement of letters of credit issued pursuant to the Revolving Credit Facility. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, -------------- state or foreign law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company or ------------------ any committee thereof duly authorized to act on behalf of such Board. "Board Resolution" means, with respect to any Person, a copy of a ---------------- resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each day which is not a Legal Holiday. ------------ "Capital Lease Obligations" of a Person means any obligation which is ------------------------- required to be classified and accounted for as a capital lease on the face of a balance sheet of such Person prepared in accordance with GAAP; the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests, ------------- rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated), including any Preferred Stock, but excluding any debt securities convertible into or exchangeable for such equity. "Cash Equivalents" means (i) marketable direct obligations issued by, ---------------- or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Ratings Service ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; (vi) investments in money market funds which 3 invest substantially all their assets in securities of the types described in clauses (i) through (v) above; and (vii) for the purposes of Section 4.17, the following are deemed to be cash or Cash Equivalents: (x) the express assumption of Indebtedness of the Company or any Restricted Subsidiary and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 120 days of closing the transaction. "Change of Control" means the occurrence of any of the following ----------------- events: (i) prior to the first public offering of common stock of the Company, the Permitted Holders cease to be the "beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a majority in the aggregate of the total voting power of the Voting Stock of the Company, whether as a result of issuance of securities of the Company, any merger, consolidation, liquidation or dissolution of the Company, any direct or indirect transfer of securities or otherwise (for purposes of this clause (i) and clause (ii) below, the Permitted Holders shall be deemed to beneficially own any Voting Stock of a corporation (the "specified corporation") held by any other corporation (the "parent corporation") so long as the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent corporation); (ii) (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in clause (i) above except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Company; and (B) the Permitted Holders "beneficially own" (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company than such other person 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 the Company (for the purposes of this clause (ii), such other person shall be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation, if such other person "beneficially owns" (as defined in this clause (ii)), directly or indirectly, more than 30% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders "beneficially own" (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation 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 such parent corporation); (iii) (A) another corporation merges into the Company or the Company consolidates with or merges into any other corporation, or (B) the Company conveys, transfers or leases all or substantially all its assets (computed on a consolidated basis) to any person or group, in one transaction or a series of transaction other than any 4 conveyance, transfer or lease between the Company and a Wholly Owned Subsidiary of the Company, in each case in one transaction or a series of related transactions with the effect that either (x) immediately after such transaction any person or entity or group (as so defined) of persons or entities (other than a Permitted Holder) shall have become the beneficial owner of securities of the surviving corporation of such merger or consolidation representing a majority of the combined voting power of the outstanding securities of the surviving corporation ordinarily having the right to vote in the election of directors or (y) the securities of the Company that are outstanding immediately prior to such transaction and which represent 100% of the combined voting power of the securities of the Company ordinarily having the right to vote in the election of directors are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at least a majority of the combined voting power of the securities of the surviving corporation ordinarily having the right vote in the election of directors; or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of 60% of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office. "Code" means the Internal Revenue Code of 1986, as amended. ---- "Company" means the party named as such in this Indenture until a ------- successor replaces it pursuant to this Indenture and thereafter means such successor. "Consolidated EBITDA Coverage Ratio" as of any date of determination ---------------------------------- means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters for which financial statements are available to (ii) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (1) if the Company or any Restricted Subsidiary has issued any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated EBITDA Coverage Ratio is an issuance of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been issued on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be (including Capital Stock of a Subsidiary) reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for 5 such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period, and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Dispositions for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets (including Capital Stock of a Subsidiary), including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the issuance of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period, and (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition or Investment occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, and the amount of Consolidated Interest Expense associated with any Indebtedness issued in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Protection Agreement applicable to such Indebtedness if such Interest Rate Protection Agreement has a remaining term in excess of 12 months). For purposes of this definition, whenever pro forma effect is to be given to any Indebtedness Incurred pursuant to a revolving credit facility the amount outstanding under such Indebtedness shall be equal to the average of the lesser of (computed on a daily basis) (1) the amount outstanding during the period commencing on the first day of the first of the four most recent fiscal quarters for which financial statements are available and ending on the date of determination and (2) the total available commitment under such revolving credit facility as of the date of determination (if such commitment has been permanently reduced). "Consolidated Interest Expense" means, for any period, the total ----------------------------- interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such interest expense but Incurred by the Company or its Restricted Subsidiaries, (i) interest expense attributable to capital leases, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest payments, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, 6 (vi) net costs under Hedging Obligations (including amortization of fees), (vii) Preferred Stock dividends in respect of all Preferred Stock held by Persons other than the Company or a Wholly Owned Subsidiary, (viii) interest Incurred in connection with investments in discontinued operations, (ix) interest actually paid by the Company or any of its consolidated subsidiaries under any Guarantee of Indebtedness or other obligation of any other Person and (x) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income of the ----------------------- Company and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income (i) any net income of any Person if such Person is not a Restricted Subsidiary, except that (A) the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income, but only to the extent of the Company's net Investment in such Person ; (ii) any net income of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Subsidiary, directly or indirectly, to the Company, except that (A) the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (but not loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person; 7 (v) non-cash charges relating to the any compensation plan, including, but not limited to stock option and stock appreciation rights plan; provided, that actual cash amounts paid in connection with any such plan which have been previously excluded under this clause (v) shall be included in determination of Consolidated Net Income when such amount are paid; (vi) non-cash charges related to the Recapitalization and all charges related to the issuance of the Notes or the use of proceeds thereof; and (vii) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" of any Person means the total of the amounts ---------------------- shown on the balance sheet of such Person and its consolidated subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of such Person for which financial statements of such Person are available, as (i) the par or stated value of all outstanding Capital Stock of such Person plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Covenant Defeasance" has the meaning provided in Section 8.02. ------------------- "Custodian" means any receiver, trustee, assignee, liquidator, --------- sequestrator or similar official under any Bankruptcy Law. "Default" means any event which is, or after notice or passage of time ------- or both would be, an Event of Default. "Default Notice" has the meaning provided in Section 10.02. -------------- "Deferred Amount" means the $6 million deposited pursuant to that --------------- certain Deferred Purchase Price and Security Agreement dated as of February 14, 1997 among the Company and the Buyers, Sellers and the Escrow Agent (each as defined therein). "Depository" means The Depository Trust Company, its nominees and ---------- their respective successors. "Designated Senior Indebtedness" of a Person means (i) the Bank ------------------------------ Indebtedness and (ii) any other Senior Indebtedness of such Person which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $25 million and is specifically designated by such Person in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture. "Disqualified Stock" means, with respect to any Person, any Capital ------------------ Stock which by its terms (or by the terms of any security into which it is convertible or for which it is 8 exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Notes; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions described under Sections 4.17 and 4.16. "EBITDA" for any period means the Consolidated Net Income for such ------ period, plus the following (but without duplication) to the extent deducted in calculating such Consolidated Net Income for such period: (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization expense and (v) all other non-cash charges (other than any recurring non-cash charges to the extent such charges represent an accrual of or reserve for cash expenditures in any future period). Notwithstanding clause (v) above, there shall be deducted from EBITDA in any period any cash expended in such period that funds a non-recurring, non-cash charge accrued or reserved in a prior period which was added back to EBITDA pursuant to clause (v) in such prior period. For the purpose of the calculation of EBITDA, net cash payments by the Company that are reimbursed from the Deferred Amount shall be excluded from the calculation. "Event of Default" has the meaning provided in Section 6.01. ---------------- "Exchange Act" means the Securities Exchange Act of 1934, as amended, ------------ or any successor statute or statutes thereto. "Exchange Notes" has the meaning provided in the preamble to this -------------- Indenture. "Exchange Offer" means the registration by the Company under the -------------- Securities Act pursuant to a registration statement of the offer by the Company to each Holder of the Initial Notes to exchange all the Initial Notes held by such Holder for the Exchange Notes in an aggregate principal amount equal to the aggregate principal amount of the Initial Notes held by such Holder, all in accordance with the terms and conditions of the Registration Rights Agreement. "fair market value" means, with respect to any asset or property, the ----------------- price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. 9 "Fair Share" has the meaning provided in Section 11.05. ---------- "Fair Share Shortfall" has the meaning provided in Section 11.05. -------------------- "Foreign Subsidiary" means a Restricted Subsidiary whose assets are ------------------ located, or whose operations are conducted primarily outside of the United States or the majority of whose sales are to Persons outside the United States. "Fraudulent Transfer Laws" has the meaning provided in Section 11.05. ------------------------ "Funding Subsidiary Guarantor" has the meaning provided in Section ---------------------------- 11.05. "GAAP" means generally accepted accounting principles in the United ---- States of America as in effect as of the date of this Indenture, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. "Global Notes" has the meaning provided in Section 2.01. ------------ "Guarantee" means any obligation, contingent or otherwise, of any --------- Person directly or indirectly guaranteeing any Indebtedness or other obligation of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreement to keep- well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantee Obligations" has the meaning provided in Section 12.01. --------------------- "Hedging Obligations" of any Person means the obligations of such ------------------- Person pursuant to any interest rate swap agreement, foreign currency exchange agreement, interest rate collar agreement, option or futures contract or other similar agreement or arrangement designed to protect such Person against changes in interest rates or foreign exchange rates. "Holder" or "Noteholder" means the Person in whose name a Note is ------ ---------- registered on the Registrar's books. "Incur" means issue, assume, Guarantee, incur or otherwise become ----- liable for Indebtedness; provided, however, that any Indebtedness of a Person existing at the time such 10 Person becomes a subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall be deemed the Incurrence of Indebtedness. "Indebtedness" of any Person means, without duplication, ------------ (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capital Lease Obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock (but excluding any accrued dividends); (vi) all Hedging Obligations; (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee (other than in each case by reason of activities described in the proviso to the definition of "Guarantee"); and (viii) all obligations of the type referred to in clauses (i) through (vii) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured. 11 The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the amount of liability required by GAAP to be accrued or reflected on the most recently published balance sheet of such Person. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value to be determined in good faith by the Board of Directors. For purposes hereof, the amount of any Indebtedness issued with original issue discount shall be the original purchase price plus accrued interest, provided, however, that such accretion shall not be deemed an incurrence of Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time --------- to time in accordance with the terms hereof. "Initial Notes" has the meaning provided in the preamble to this ------------- Indenture. "Initial Purchasers" means Credit Suisse First Boston Corporation and ------------------ Furman Selz LLC. "Institutional Accredited Investor" means an institution that is an --------------------------------- "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Payment Date" means the stated maturity of an installment of --------------------- interest on the Notes. "Interest Rate Protection Agreement" means any interest rate swap ---------------------------------- agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates. "Investment" in any Person means any direct or indirect advance, loan ---------- (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the Person making the advance or loan) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary," the definition of "Restricted Payment" and the covenant described under Section 4.10, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that if such designation is made in connection with the acquisition of such Subsidiary 12 or the assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be deemed to be the consideration paid in connection with such acquisition; provided further, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent investment in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation, and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "issue" means issue, assume, Guarantee, Incur or otherwise become ----- liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be issued by such Subsidiary at the time it becomes a Subsidiary; and the term "issuance" has a corresponding meaning. "Issue Date" means the date of original issuance of the Notes. ---------- "Legal Defeasance" has the meaning provided in Section 8.02. ---------------- "Legal Holiday" has the meaning provided in Section 13.07. ------------- "Lien" means any mortgage, pledge, security interest, conditional sale ---- or other title retention agreement or other similar lien. "Maturity Date" means May 15, 2007. ------------- "Net Available Cash" from an Asset Disposition means cash payments ------------------ received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other non-cash form) therefrom, in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses Incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset 13 Disposition, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Disposition. Further, with respect to an Asset Disposition by a Subsidiary which is not a Wholly Owned Subsidiary, Net Available Cash shall be reduced pro rata for the portion of the equity of such Subsidiary which is not owned by the Company. "Net Cash Proceeds", with respect to any issuance or sale of Capital ----------------- Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees and expenses actually Incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Non-U.S. Person" means a person who is not a U.S. person, as defined --------------- in Regulation S. "Notes" means the Initial Notes and the Exchange Notes treated as a ----- single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Obligations" means with respect to any Indebtedness all obligations ----------- for principal, premium, interest (including, without limitation, interest after the commencement of any bankruptcy, reorganization, insolvency or similar proceeding against the Company or any of its Subsidiaries, whether or not allowed in any such proceeding), penalties, fees, indemnifications, reimbursements, and other amounts payable pursuant to the documentation governing such Indebtedness. "Offer" has the meaning provided in Section 4.17. ----- "Offer Amount" has the meaning provided in Section 4.17. ------------ "Offer Period" has the meaning provided in Section 4.17. ------------ "Offering Memorandum" means the Offering Memorandum dated May 1, 1997, ------------------- pursuant to which the Initial Notes were offered, and any supplement thereto. "Officer" means, with respect to any Person, the Chairman of the ------- Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of such Person, or any other officer designated by the Board of Directors serving in a similar capacity. "Officers' Certificate" means, with respect to any Person, a --------------------- certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such Person and otherwise complying with the requirements of Sections 13.04 and 13.05, as they relate to the making of an Officers' Certificate. 14 "Opinion of Counsel" means a written opinion from legal counsel, who ------------------ may be counsel for the Company, and who is reasonably acceptable to the Trustee and not rendered by any employee of the Company or any of its Affiliates or Subsidiaries complying with the requirements of Sections 13.04 and 13.05, as they relate to the giving of an Opinion of Counsel. "Paying Agent" has the meaning provided in Section 2.03. ------------ "Payment Blockage Period" has the meanings provided in Sections 10.02 ----------------------- and 12.02. "Permitted Holders" means Andrew Goldfarb, Windward Capital ----------------- Associates, L.P., Windward/Park HCC, L.L.C., Windward/Merchant, L.P., Windward/Merban, L.P. or any of their respective members or partners or any Affiliate of any of the foregoing. "Permitted Investment" means an Investment by the Company or any -------------------- Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (v) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vi) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary; (vii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; and (viii) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to the covenant described under Section 4.17. "Permitted Liens" means, with respect to any Person, (a) pledges or --------------- deposits by such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits or cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (b) Liens imposed by law, including carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings; or other Liens arising out of judgments or awards against such Person 15 with respect to which such Person shall then be proceeding with an appeal or other proceedings for review; (c) Liens for taxes, assessments or other governmental charges not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings provided appropriate reserves have been taken on the books of the Company; (d) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit do not constitute Indebtedness; (e) encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or liens incidental to the conduct of the business of such Person or to the ownership of its properties which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (f) Liens securing an Interest Rate Protection Agreement so long as the related Indebtedness is, and is permitted to be under this Indenture, secured by a Lien on the same property securing the Interest Rate Protection Agreement; and (g) leases and subleases of real property which do not materially interfere with the ordinary conduct of the business of the Company or any of its Subsidiaries; (h) judgement Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (i) Liens for the purpose of securing the payment (or the refinancing of the payment) of all or a part of any Purchase Money Indebtedness relation to assets or property acquired or constructed in the ordinary course of business provided that (x) the aggregate principal amount of Indebtedness secured by such Liens shall not exceed the cost of the assets or property so acquired or constructed and (y) such Liens shall not encumber any other assets or property of the Company or any Restricted Subsidiary other than such Assets or property and assets affixed or appurtenant thereto; (j) Liens arising solely by virtue of any statutory or common law provision relating to banker's Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor expository institution; provided that (x) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the Federal Reserve Board, and (y) such deposit account is not intended by the Company or any Subsidiary to provide collateral to the depository institution; and (k) Liens arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Subsidiaries in the ordinary course of business. "Person" means any individual, corporation, limited liability company, ------ limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, --------------- means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. 16 "principal" of any Indebtedness (including the Notes) means the --------- principal amount of such Indebtedness plus the premium, if any, on such Indebtedness. "Private Placement Legend" means the legend initially set forth on the ------------------------ Notes in the form set forth in Section 2.15. "pro forma" means, with respect to any calculation made or required to --------- be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act, as determined by the Board of Directors of the Company. "Public Equity Offering" means an underwritten primary or combined ---------------------- primary and secondary public offering of common stock of the Company pursuant to an effective registration abatement under the Securities Act. "Public Market" means any time after (x) a Public Equity Offering has ------------- been consummated and (y) at least 20% of the total issued and outstanding common stock of the Company has been distributed by means of an effective registration statement under the Securities Act or sales pursuant to Rule 144 under the Securities Act. "Purchase Date" has the meaning provided in Section 4.17. ------------- "Purchase Money Indebtedness" means any Indebtedness of a Person to --------------------------- any seller or other Person incurred to finance the acquisition (including in the case of a Capitalized Lease Obligation, the lease) of any real or personal tangible property which, in the reasonable good faith judgment of the Board of Directors, is directly related to the business of the Company or any Subsidiary and which is incurred substantially concurrently with such acquisition and is secured only by the assets so financed. "QIB" means qualified institutional buyer within the meaning of Rule --- 144A of the Securities Act. "Record Date" means each Record Date specified in the Notes, whether ----------- or not a Legal Holiday. "Redemption Date," when used with respect to any Note to be redeemed, --------------- means the date fixed for such redemption pursuant to this Indenture and the Notes. "Redemption Price," when used with respect to any Note to be redeemed, ---------------- means the price fixed for such redemption pursuant to this Indenture and the Notes. "Reference Date" has the meaning provided in Section 4.10. -------------- "Refinance" means, in respect of any Indebtedness, to refinance, --------- extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or 17 replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any ------------------------ Indebtedness of the Company or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with this Indenture, including Indebtedness that Refinances Refinancing Indebtedness; provided, however, that (i) such Refinancing Indebtedness has a Stated Maturity no earlier than the earlier of (x) the Stated Maturity of the Indebtedness being Refinanced and (y) the Stated Maturity of the Notes, (ii) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less that the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus unpaid accrued interest and any premium and defeasance costs) under the Indebtedness being Refinanced plus actual fees and expenses Incurred in connection with the Refinancing; provided, further, however, that (x) Refinancing Indebtedness shall not include (1) Indebtedness of a Subsidiary that is not a Wholly Owned Subsidiary that Refinances Indebtedness of the Company or (2) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary and (y) if the Indebtedness being Refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness shall be subordinate to the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. Registrar" has the meaning provided in Section 2.03. --------- "Registration Rights Agreement" means the Registration Rights ----------------------------- Agreement dated May 6, 1997 among the Company, the Subsidiary Guarantors and the Initial Purchasers for the benefit of themselves and the Holders, as the same may be amended or modified from time to time in accordance with the terms thereof. "Regulation S" means Regulation S under the Securities Act. ------------ "Regulation S Global Note" has the meaning provided in Section 2.01. ------------------------ "Regulation S Global Note Certificate" has the meaning provided in ------------------------------------ Section 2.01. "Related Business" means any business related, ancillary or ---------------- complementary to the businesses of the Company and the Restricted Subsidiaries on the Issue Date. "Replacement Assets" has the meaning provided in Section 4.17. ------------------ "Representative" means the indenture trustee or other trustee, agent -------------- or representative in respect of any Designated Senior Indebtedness; provided that if, and for so long as, any Senior Indebtedness lacks such a representative, then the Representative for such Designated Senior Indebtedness shall at all times be the holders of a majority in outstanding 18 principal amount of such Designated Senior Indebtedness in respect of any Designated Senior Indebtedness. "Restricted Payment" has the meaning provided in Section 4.10. ------------------ "Restricted Security" has the meaning assigned to such term in Rule ------------------- 144(a)(3) under the Securities Act; provided that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Security. "Restricted Subsidiary" means any Subsidiary of the Company that is --------------------- not an Unrestricted Subsidiary. "Revolving Credit Facility" means the credit agreement dated as of ------------------------- February 14, 1997 by and among the Company, certain financial institutions and Fleet Capital Corporation, as agent, as amended as at the Issue Date, providing for an aggregate $20 million revolving credit facility, including any related notes, guarantees (including, without limitation, by all Subsidiary Guarantors), collateral documents, instruments and agreements executed in connection therewith, as such credit agreement and/or related documents may be amended, restated, supplemented, renewed, replaced or otherwise modified from time to time whether or not with the same agent, trustee, representative lenders or holders, and irrespective of any changes in the terms and conditions thereof. Without limiting the generality of the foregoing, the term "Revolving Credit Facility" shall include agreements in respect of reimbursement of letters of credit issued pursuant to the Revolving Credit Facility, agreements in respect of Hedging Obligations with lenders party to the Revolving Credit Facility and shall also include any amendment, amendment and restatement, renewal, extension, restructuring, supplement or modification to any Revolving Credit Facility and all refundings, refinancings (in whole or in part) and replacements of any Revolving Credit Facility, including any agreement (i) extending the maturity of any Indebtedness incurred thereunder or contemplated thereby, (ii) adding or deleting borrowers or guarantors thereunder, so long as borrowers and issuers include one or more of the Company and its Restricted Subsidiaries and their respective successors and assigns. "Rule 144A" means Rule 144A under the Securities Act. --------- "SEC" means the Securities and Exchange Commission. --- "Secured Indebtedness" means any Indebtedness of a Person secured by a -------------------- Lien. "Securities Act" means, the Securities Act of 1933, as amended, or any -------------- successor statute or statutes thereto. "Senior Indebtedness" means with respect to any Person (x) Bank ------------------- Indebtedness and (y) all Obligations under any other Indebtedness other than (1) any obligation of such Person to any subsidiary of such Person, (2) any liability of such Person for federal, state, local or other taxes owed or owing by such Person, (3) any accounts payable or other liability of such Person 19 to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness, Guarantee or obligation of such Person which is, expressly by its terms, subordinate or junior in any respect to any other Indebtedness, Guarantee or obligation of such Person, (5) that portion of any Indebtedness of such Person which at the time of issuance is issued in violation of this Indenture or (6) Indebtedness of such Person represented by Disqualified Capital Stock. "Senior Subordinated Indebtedness" means the Notes and any other -------------------------------- Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness of the Company. "Significant Subsidiary" means any Restricted Subsidiary that would be ---------------------- a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the final date --------------- specified in such security as the fixed date on which all outstanding principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company or any ----------------------- Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Notes or the relevant Restricted Subsidiary, as applicable, pursuant to a written agreement to that effect. "Subsidiary" means any corporation, association, partnership, limited ---------- liability company or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) the Company, (ii) the Company and one or more Subsidiaries or (iii) one or more Subsidiaries. "Subsidiary Guarantee" means a Guarantee by a Subsidiary Guarantor of -------------------- the Company's obligations with respect to the Notes. "Subsidiary Guarantor" means each of the Restricted Subsidiaries that -------------------- execute a Guarantee pursuant to Section 4.20, each until a successor replaces it pursuant to this Indenture and thereafter means such successor. A Restricted Subsidiary whose Guarantee has terminated pursuant to Section 4.20 ceases to be a Guarantor effective as of such termination. "Tangible Property" means all land, buildings, machinery and equipment ----------------- and leasehold interests and improvements which would be reflected on a balance sheet of the 20 Company prepared in accordance with generally accepted accounting principles, excluding (i) all such tangible property located outside the United States of America, (ii) all rights, contracts and other intangible assets of any nature whatsoever and (iii) all inventories and other current assets. "Temporary Cash Investments" means any of the following: -------------------------- (i) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof. (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor. (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above. (iv) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group, and (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard and Poor's Ratings Group or "A" by Moody's Investors Service, Inc . "Temporary Regulation S Global Note" has the meaning provided in ---------------------------------- Section 2.01. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa- --- 77bbbb) as in effect on the date of this Indenture. "Tranche A Term Loan" means the $30 million, five year Tranche A Term ------------------- Loan dated as of February 14, 1997 among the Company and the banks set forth therein. 21 "Tranche B Term Loan" means the $30 million, six and one-half year ------------------- Tranche B Term Loan dated February 14, 1997 among the Company and the banks set forth therein. "Trust Officer" means any officer of the Trustee assigned by the ------------- Trustee to administer this Indenture, or in the case of a successor trustee, an officer assigned to the department, division or group performing the corporation trust work of such successor and assigned to administer this Indenture. "Trustee" means the party named as such in this Indenture until a ------- successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that ----------------------- at the time of determination shall be or shall have been designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, the Company or any other Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated and subject to the Section 4.21; provided, however, that the Subsidiary so designated and each of its Subsidiaries has not at the time of such designation or thereafter Incurred any Indebtedness pursuant to which the Lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) if such Unrestricted Subsidiary at such time has Indebtedness, the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under Section 4.13 and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced by the Company to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an officer's certificate certifying that such designation complied with the foregoing provisions. "U.S. Global Note" has the meaning provided in Section 2.01. ---------------- "U.S. Global Note Certificate" has the meaning provided in Section ---------------------------- 2.01. "U.S. Government Obligations" means direct obligations (or --------------------------- certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "U.S. Legal Tender" means such coin or currency of the United States ----------------- of America as at the time of payment shall be legal tender for the payment of public and private debts. 22 "Voting Stock" of a corporation means all classes of Capital Stock of ------------ such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the ----------------------- Capital Stock of which (other than directors' qualifying shares and shares held by other Persons to the extent such Shares are required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary) is owned by the Company or one or more Wholly Owned Subsidiaries. "Windward" means Windward Capital Associates, L.P. -------- SECTION 1.02. Incorporation by Reference of TIA. --------------------------------- Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes. "indenture security holder" means a Holder or a Noteholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company or any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. --------------------- Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP as in effect on the date hereof; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; and 23 (5) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. (6) reference to Sections or Articles means reference to such Section or Article in this Indenture, unless stated otherwise. ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating. --------------- (a) The Initial Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Exchange Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit B hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or depository rule or usage. The Company and the Trustee shall approve the form of the Notes and any notation, legend or endorsement on them. Each Note shall be dated the date of its issuance and shall show the date of its authentication. The Initial Notes are being offered and sold by the Company pursuant to a Purchase Agreement, dated May 1, 1997 between the Company and the Initial Purchasers named therein. (b) The terms and provisions contained in the Notes, annexed hereto as Exhibits A and B, shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. (c) The Notes sold within the United States to QIBs in reliance on Rule 144A under the Securities Act will be issued in the form of a single global note in fully registered form without interest coupons (the "U.S. Global Note"). The U.S. Global Note will be deposited on behalf of the subscribers therefor with the Trustee as custodian for the Depository and will be registered in the name of the Depository or its nominee. The Notes sold outside the United States in reliance on Regulation S under the Securities Act will be represented initially by a single temporary global note (the "Temporary Regulation S Global Note") in fully registered form without interest coupons registered in the name of the Depository or its nominee and deposited on behalf of the subscribers therefor with the Trustee, as custodian. Beneficial interests in the Temporary Regulation S Global Note may be held only through the Euroclear System ("Euroclear") or Cedel Bank, Societe Anonyme ("Cedel") unless delivery is made through the U.S. Global Note in accordance with the certification requirements set forth in this Article Two. 24 After the expiration of the "40-day restricted period" (within the meaning of Rule 903(c)(3) of Regulation S under the Securities Act) (the "40-day restricted period"), the Temporary Regulation S Global Note will be exchanged for a single permanent global note in registered form (the "Regulation S Global Note") upon delivery to the Depository of certification of compliance with the transfer restrictions applicable to the Notes and with Regulation S under the Securities Act. The U.S. Global Note, the Temporary Regulation S Global Note and the Regulation S Global Note are collectively referred to as the "Global Notes." The Regulation S Global Note will be deposited with the Trustee, as custodian and will be registered in the name of a nominee of the Depository. Beneficial interests in the Regulation S Global Note may be held through organizations other than Cedel and Euroclear that are participants in the Depository. Cedel and Euroclear will hold beneficial interests in the Regulation S Global Note on behalf of their participants through their respective depositaries, which in turn will hold such beneficial interests in the Regulation S Global Note in participants' securities accounts in the depositaries' names on the books of the Depository. During the 40-day restricted period, a beneficial interest in the Temporary Regulation S Global Note may be transferred to a person who takes delivery in the form of a beneficial interest in the U.S. Global Note only upon receipt by the Registrar of a written certification from the transferor to the effect that such transfer is being made to a Person whom the transferor reasonably believes to be a QIB in a transaction meeting the requirements of Rule 144A and in accordance with applicable securities laws of any state of the United States or any other jurisdiction (a "U.S. Global Note Certificate"). After the 40-day restricted period, unless the Temporary Regulation S Global Note has not been exchanged for the Regulation S Global Note, such certification requirement will no longer apply to such transfers. Beneficial interests in the U.S. Global Note may be transferred to a Person who takes delivery in the form of an interest in the Temporary Regulation S Global Note or Regulation S Global Note, as the case may be, whether before, during or after the 40-day restricted period, only upon receipt by the Registrar of written certification from the transferor to the effect that such transfer is being made in accordance with Rule 903 or Rule 904 of Regulation S or Rule 144A (a "Regulation S Global Note Certificate"). Any beneficial interest in one of the Global Notes that is transferred to a Person who takes delivery in the form of another Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Note for so long as it remains an interest. The Registrar may rely on the information set forth in a U.S. Global Note Certificate, a Regulation S Global Note Certificate and other certificates and opinions received pursuant to this Article Two and, in the absence of receipt of such a certificate or opinion, shall not be deemed to have knowledge of a transfer of an interest in a Global Note absent actual knowledge of such transfer. Except in the limited circumstances described herein, owners of beneficial interests in the Global Notes will not be entitled or required to receive physical delivery of individual definitive Notes. The Notes are not issuable in bearer form. 25 SECTION 2.02. Execution and Authentication; Aggregate Principal ------------------------------------------------- Amount. - ------ Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Notes for the Company by manual or facsimile signature. The Company's seal shall also be reproduced on the Notes. If an Officer or Assistant Secretary whose signature is on a Note was an Officer or Assistant Secretary at the time of such execution but no longer holds that office or position at the time the Trustee authenticates the Note, the Note shall nevertheless be valid. A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall authenticate (i) Initial Notes for original issue in the aggregate principal amount not to exceed $90,000,000, and (ii) Exchange Notes from time to time for issue only in exchange for a like principal amount of Initial Notes, in each case upon written orders of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Notes to be authenticated, the date on which the Notes are to be authenticated and the aggregate principal amount of Notes outstanding on the date of authentication, whether the Notes are to be Initial Notes or Exchange Notes, and shall further specify the amount of such Notes to be issued as a Global Note. The aggregate principal amount of Notes outstanding at any time may not exceed $90,000,000, except as provided in Section 2.07. The aggregate principal amount of each of the Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee as Custodian for the Depository, as hereinafter provided. The Trustee may appoint an authenticating agent (the "Authenticating Agent") reasonably acceptable to the Company to authenticate Notes. Unless otherwise provided in the appointment, an Authenticating Agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Authenticating Agent. An Authenticating Agent has the same rights as an Agent to deal with the Company and Affiliates of the Company. The Notes shall be issuable in fully registered form only, without coupons, in denominations of $1,000 and any integral multiple thereof. SECTION 2.03. Registrar and Paying Agent. -------------------------- The Company shall maintain an office or agency (which shall be located in the Borough of Manhattan in the City of New York, State of New York) where (a) Notes may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Notes 26 may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may have one or more co-Registrars and one or more additional paying agents. The term "Paying Agent" includes any additional Paying Agent. Neither the Company nor any Affiliate of the Company may act as Paying Agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall incorporate the provisions of the TIA and implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of demands and notices in connection with the Notes, until such time as the Trustee has resigned or a successor has been appointed. The Paying Agent or Registrar may resign upon 30 days notice to the Company. SECTION 2.04. Paying Agent To Hold Assets in Trust. ------------------------------------ The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Notes (whether such assets have been distributed to it by the Company or any other obligor on the Notes), and the Company and the Paying Agent shall notify the Trustee of any Default by the Company (or any other obligor on the Notes) in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may, and upon direction of a majority of the Holders shall, at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.05. Noteholder Lists. ---------------- The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders, and shall otherwise comply with TIA (S) 312(a). If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee before each Record Date and at such other times as the Trustee may request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of the Holders, which list may be conclusively relied upon by the Trustee and the Company shall otherwise comply with TIA (S) 312(a). 27 SECTION 2.06. Transfer and Exchange. --------------------- Subject to the provisions of Sections 2.16 and 2.17, when Notes are presented to the Registrar or a co-Registrar with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's or co-Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Sections 2.10, 3.06, 4.16, 4.17 or 9.06, in which event the Company shall be responsible for the payment of such taxes). The Registrar or co-Registrar shall not be required to register the transfer of or exchange any Note (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Notes and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Note being redeemed in part. Any Holder of a Global Note, shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Notes may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in such Global Note shall be required to be reflected in a book entry. SECTION 2.07. Replacement Notes. ----------------- If a mutilated Note is surrendered to the Trustee or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note if the Trustee's reasonable requirements are met. If required by the Trustee or the Company, such Holder must provide an affidavit of lost certificate and an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Note is replaced. The Company and the Trustee may charge such Holder for their out-of-pocket expenses in replacing a Note, including reasonable fees and expenses of counsel, and for any tax that may be imposed in replacing such Notes. Every replacement Note shall constitute an additional obligation of the Company. 28 SECTION 2.08. Outstanding Notes. ----------------- Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to the provisions of Section 2.09, a Note does not cease to be outstanding because the Company or any of its Affiliates holds the Note. If a Note is replaced pursuant to Section 2.07 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.07. If on a Redemption Date or the Maturity Date the Paying Agent holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Notes payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Notes cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. Treasury Notes. -------------- In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver, consent or notice, Notes owned by the Company or any of its Affiliates shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which a Trust Officer of the Trustee actually knows are so owned shall be so considered. SECTION 2.10. Temporary Notes. --------------- Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon receipt of a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of temporary Notes to be authenticated and the date on which the temporary Notes are to be authenticated. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate upon receipt of a written order of the Company pursuant to Section 2.02 definitive Notes in exchange for, and upon surrender of, temporary Notes. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes authenticated and delivered hereunder. 29 SECTION 2.11. Cancellation. ------------ The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and, at the written direction of the Company, shall dispose of all Notes surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Notes to replace Notes that it has paid or delivered to the Trustee for cancellation. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12. Defaulted Interest. ------------------ If the Company defaults in a payment of interest on the Notes (without regard to any grace period therefor), it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest to the Persons who are Holders on a subsequent special record date, which date shall be the fifteenth day preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder, as of a recent date selected by the Company, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. SECTION 2.13. CUSIP Number. ------------ The Company in issuing the Notes may use "CUSIP" numbers, and if so, the Trustee shall use such CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided that no representation is hereby deemed to be made by the Trustee as to the correctness or accuracy of such CUSIP numbers printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly notify the Trustee of any change in a CUSIP number. SECTION 2.14. Deposit of Moneys. ----------------- Prior to 11:00 a.m. New York City time on each Interest Payment Date and on the Maturity Date, the Company shall deposit with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date or Maturity Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date or Maturity Date, as the case may be. 30 SECTION 2.15. Restrictive Legends. ------------------- Each Global Note and Note in definitive form that constitutes a Restricted Security shall bear the following legend (the "Private Placement Legend") on the face thereof until May 6, 1999, unless otherwise agreed by the Company and the Holder thereof: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURITY AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER- DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE OR REGISTRAR), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY, IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" 31 HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT, DATED MAY 6, 1997, EXECUTED AND DELIVERED BY THE COMPANY AND THE GUARANTORS FOR THE BENEFIT OF HOLDERS FROM TIME TO TIME OF SECURITIES. COPIES OF SUCH REGISTRATION RIGHTS AGREEMENT ARE AVAILABLE FOR INSPECTION AT THE CORPORATE TRUST OFFICE OF THE TRUSTEE. Each Global Note shall also bear the following legend on the face thereof: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THIS INDENTURE. SECTION 2.16. Book-Entry Provisions for Global Notes. -------------------------------------- (a) The Global Notes initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Section 2.15. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Notes held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Notes, and the Depository may 32 be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of a beneficial interest in any Global Note. (b) Transfers of the Global Notes shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Notes in definitive form in accordance with the rules and procedures of the Depository and the provisions of Section 2.17. In addition, Notes in definitive form shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Note if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for any Global Note, and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depository to issue Notes in definitive form. (c) In connection with any transfer or exchange of a portion of the beneficial interest in a Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Notes in definitive form are to be issued) reflect on its books and records the date and a decrease in the principal amount of such Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall, upon written direction from the Company, authenticate and deliver, one or more Notes in definitive form of like tenor and amount. (d) In connection with the transfer of an entire Global Note to beneficial owners pursuant to paragraph (b), such Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in such Global Note, an equal aggregate principal amount of Notes in definitive form of authorized denominations. (e) Any Note in definitive form constituting a Restricted Security delivered in exchange for an interest in the Global Note pursuant to paragraph (b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 2.17, bear the legend regarding transfer restrictions applicable to the Notes in definitive form set forth in Section 2.15. (f) The Holder of the Global Notes may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. SECTION 2.17. Special Transfer Provisions. --------------------------- 33 (a) Transfers to Non-QIB Institutional Accredited Investors and Non- --------------------------------------------------------------- U.S. Persons. The following provisions shall apply with respect to the - ------------ registration of any proposed transfer of a Note constituting a Restricted Security to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: (i) the Registrar shall register the transfer of any Note constituting a Restricted Security, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after May 6, 1999 or (y) (1) in the case of a transfer to an Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto or (2) in the case of a transfer to a Non-U.S. Person, the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto and such other information that the Trustee may reasonably request in order to confirm that such transaction is being made pursuant to an exemption from or in a transaction not subject to the registration requirements of the Securities Act; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in a Global Note, upon receipt by the Registrar of (x) the certificate, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depository's and the Registrar's procedures, whereupon (a) the Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Notes in definitive form) a decrease in the principal amount of such Global Note in an amount equal to the principal amount of the beneficial interest in such Global Note to be transferred, and (b) the Company shall execute and the Trustee shall authenticate and deliver one or more Notes in definitive form of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with ----------------- respect to the registration of any proposed transfer of a Note constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons): (i) the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and 34 (ii) if the proposed transferee is an Agent Member, and the Notes to be transferred consist of Notes in definitive form which after transfer are to be evidenced by an interest in the Global Note, upon receipt by the Registrar of instructions given in accordance with the Depository's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Note in an amount equal to the principal amount of the Notes in definitive form to be transferred, and the Trustee shall cancel the Notes in definitive form so transferred. (c) Private Placement Legend. Upon the transfer, exchange or ------------------------ replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless (i) the circumstance contemplated by paragraph (a)(i)(x) of this Section 2.17 exist or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (d) General. By its acceptance of any Note bearing the Private ------- Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.16 or this Section 2.17. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee. ------------------ If the Company elects to redeem Notes pursuant to Paragraph 6 of the Notes, it shall notify the Trustee and the Paying Agent in writing of the Redemption Date and the principal amount of the Notes to be redeemed. The Company shall give each notice provided for in this Section 3.01 at least 60 days before the Redemption Date (unless a shorter notice period shall be satisfactory to the Trustee, as evidenced in a writing signed on behalf of the Trustee), together with an Officers' 35 Certificate stating that such redemption shall comply with the conditions contained herein and in the Notes. SECTION 3.02. Selection of Notes To Be Redeemed. --------------------------------- If fewer than all of the Notes are to be redeemed, selection of the Notes to be redeemed will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or in such other fair and reasonable manner chosen at the discretion of the Trustee; provided, however, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the Notes or portion thereof for redemption shall be made by the Trustee only on a pro rata basis, unless such method is otherwise prohibited. The Company shall promptly notify the Trustee and the Paying Agent in writing of the date of listing and the name of the securities exchange if and when the Notes are listed on a principal national securities exchange. The Trustee shall make the selection from the Notes outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Notes that have denominations larger than $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.03. Notice of Redemption. -------------------- At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail or cause to be mailed a notice of redemption by first class mail, postage prepaid, to each Holder whose Notes are to be redeemed, with a copy to the Trustee and any Paying Agent. At the Company's written request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Each notice for redemption shall identify the Notes to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price and the amount of accrued interest, if any, to be paid; (3) the name and address of the Paying Agent; (4) the subparagraph of the Notes pursuant to which such redemption is being made; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price plus accrued interest, if any; 36 (6) that, unless the Company defaults in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price plus accrued interest, if any, upon surrender to the Paying Agent of the Notes redeemed; (7) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, and upon surrender of such Note, a new Note or Notes in the aggregate principal amount equal to the unredeemed portion thereof will be issued; and (8) if fewer than all the Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption; and (9) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. SECTION 3.04. Effect of Notice of Redemption. ------------------------------ Once notice of redemption is mailed in accordance with Section 3.03, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price plus accrued interest, if any. Upon surrender to the Trustee or Paying Agent, such Notes called for redemption shall be paid at the Redemption Price and the amount of accrued interest payable thereon, provided that if a Note is redeemed on or after a Record Date for an interest payment but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the Holder of record at the close of business on such Record Date. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05. Deposit of Redemption Price. --------------------------- On or before 11:00 a.m. New York City time on the Redemption Date, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price plus accrued interest, if any, of all Notes to be redeemed on that date (other than Notes or portions of Notes called for redemption which have been delivered by the Company to the Trustee for cancellation). The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. If the Company complies with the preceding paragraph, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, interest on the Notes to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Notes are presented for payment. 37 SECTION 3.06. Notes Redeemed in Part. ---------------------- Upon surrender of a Note that is to be redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder a new Note or Notes equal in principal amount to the unredeemed portion of the Note surrendered. ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes. ---------------- The Company shall pay or cause to be paid the principal of and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. An installment of principal of or interest on the Notes shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or an Affiliate of the Company) holds on that date U.S. Legal Tender designated for and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture. Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder. SECTION 4.02. Maintenance of Office or Agency. ------------------------------- The Company shall maintain the office or agency required under Section 2.03. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.02. SECTION 4.03. Corporate Existence. ------------------- Except as otherwise permitted by Article Five and Section 4.16, the Company shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each of its Restricted Subsidiaries in accordance with the respective organizational documents of each of them and the material rights (charter and statutory) and franchises of the Company and each such Restricted Subsidiary; provided, however, that neither the Company nor any Restricted Subsidiary shall be required to preserve any right or franchise if the Board of Directors of the Company or the Restricted Subsidiary, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of such entity. 38 SECTION 4.04. Payment of Taxes and Other Claims. --------------------------------- The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings properly instituted and diligently conducted for which adequate reserves, to the extent required under GAAP, have been taken. SECTION 4.05. Maintenance of Properties and Insurance. --------------------------------------- (a) The Company shall, and shall cause each of its Restricted Subsidiaries to, maintain its material properties in good working order and condition (subject to ordinary wear and tear) and make all necessary repairs, renewals, replacements, additions, betterments and improvements thereto and actively conduct and carry on its business; provided, however, that nothing in this Section 4.05 shall prevent the Company or any of its Restricted Subsidiaries from discontinuing the operation and maintenance of any of its properties, if such discontinuance is, in the good faith judgment of the Board of Directors of the Company or the Restricted Subsidiary, as the case may be, desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and is not disadvantageous in any material respect to the Holders. (b) The Company shall provide or cause to be provided, for itself and each of its Restricted Subsidiaries, insurance (including appropriate self- insurance) against loss or damage of the kinds that, in the good faith judgment of the Board of Directors of the Company, are adequate and appropriate for the conduct of the business of the Company and such Restricted Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be customary, in the good faith judgment of the Board of Directors of the Company, for companies similarly situated in the industry. SECTION 4.06. Compliance Certificate; Notice of Default. ----------------------------------------- (a) The Company shall deliver to the Trustee, within 120 days after the end of the Company's fiscal year, an Officers' Certificate stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of such Officer's knowledge, based on such review, the Company during such preceding fiscal year has kept, observed, performed and fulfilled each and every such covenant and no Default or Event of Default occurred during 39 such year and at the date of such certificate there is no Default or Event of Default that has occurred and is continuing or, if such signers do know of such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end. (b) So long as not contrary to the then-current recommendations of the American Institute of Certified Public Accountants, the annual financial statements delivered pursuant to Section 4.08 shall be accompanied by a written report of the Company's independent accountants (who shall be a firm of established national reputation) that in conducting their audit of such financial statements nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article Four or Five of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) (i) If any Default or Event of Default has occurred and is continuing or (ii) if any Holder seeks to exercise any remedy hereunder with respect to a claimed Default under this Indenture or the Notes, the Company shall deliver to the Trustee, at its address set forth in Section 13.02 hereof, by registered or certified mail or by telegram, telex or facsimile transmission followed by hard copy by registered or certified mail an Officers' Certificate specifying such event, notice or other action within five Business Days of its becoming aware of such occurrence. SECTION 4.07. Compliance with Laws. -------------------- The Company shall comply, and shall cause each of its Restricted Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as are not in the aggregate reasonably likely to have a material adverse effect on the financial condition or results of operations of the Company and its Restricted Subsidiaries, taken as a whole. SECTION 4.08. SEC Reports. ----------- (a) So long as the Notes are outstanding, the Company (at its own expense) shall file with the SEC and shall provide to the Trustee and the Holders within 15 days after it files them with the SEC copies of the quarterly and annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) to be filed pursuant to Section 13 or 15(d) of the Exchange Act (without regard to whether the Company is subject to the requirements of such Section 13 or 15(d) of the Exchange Act); provided that prior to the consummation of the Exchange Offer and the issuance of the Exchange Notes, the Company (at its own expense) will mail to the 40 Trustee and Holders substantially the same information that would have been required by such Sections within 15 days of when any such document would otherwise have been required to be filed with the SEC. Upon qualification of this Indenture under the TIA, the Company shall also comply with the provisions of the TIA (S) 314(a). (b) The Company shall provide to any Holder any information reasonably requested by such Holder concerning the Company (including financial statements) necessary in order to permit such Holder to sell or transfer Notes in compliance with Rule 144A under the Securities Act. SECTION 4.09. Waiver of Stay, Extension or Usury Laws. --------------------------------------- The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.10. Limitation on Restricted Payments. --------------------------------- (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly: (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of its Capital Stock in their capacities as such (except dividends or distributions payable solely in Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to purchase its Capital Stock (other than Disqualified Stock and except dividends or distributions payable to the Company or a Restricted Subsidiary and, if a Restricted Subsidiary is not wholly owned, to all stockholders on a pro rata basis); (ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or of any direct or indirect parent of the Company; (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition and other than any required or mandatory payments, purchases or acquisitions triggered by events which would trigger the prepayments of the Notes described under Sections 4.16 and 4.17 provided that such required or mandatory payments, purchases or acquisitions (x) are otherwise in accordance with the terms of this Indenture, (y) are made in accordance with the subordination provisions governing such Subordinated Obligations and (z) an offer is made to prepay the Notes in accordance with the terms of this 41 Indenture, and if such offer is accepted, payments shall be made with respect to the Notes being repurchased prior to any payment with respect to such Subordinated Obligations); or (iv) make any Investment in any Affiliate of the Company other than a Restricted Subsidiary or a Person which will become a Restricted Subsidiary as a result of any such Investment (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to as a "Restricted Payment") if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); or (2) the Company would not be permitted to issue an additional $1.00 of Indebtedness pursuant to clause (a) under Section 4.13 after giving pro forma effect to such Restricted Payment; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the date on which the Notes were originally issued would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter during which the Notes were originally issued to the end of the most recent fiscal quarter for which financial statements are available (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) subsequent to the date on which the Notes were originally issued (other than an issuance or sale to a Subsidiary or an employee stock ownership plan or similar trust in the benefit of employees); (C) the aggregate Net Cash Proceeds received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) to an employee stock ownership plan subsequent to the date on which the Notes were originally issued; provided, however, that if such employee stock ownership plan issues any Indebtedness, such aggregate amount shall be limited to an amount equal to any increase in the Consolidated Net Worth of the Company resulting from principal repayments made by such employee stock ownership plan with respect to Indebtedness issued by it to finance the purchase of such Capital Stock; (D) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary) subsequent to the date on which the Notes were originally issued of any Indebtedness of the Company convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or other property, distributed by the Company upon such conversion or exchange); and (E) an amount equal to the sum of (i) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, interest, repayments of loans or advances or Indebtedness or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary (provided such Unrestricted Subsidiary is otherwise eligible to become a Restricted Subsidiary); provided, however, that the foregoing sum in clause (E) shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary. (b) The provisions of Section (a) shall not prohibit: (1) any payments made to repay the Company's $30 million, five year Tranche A Term Loan, the Company's $30 million, six and one-half year Tranche B Term Loan, to redeem the Company's 12% 42 subordinated notes due 2004 and the contingent anti-dilution warrants to purchase 1,461 shares of the Company's Common Stock, each dated as of February 14, 1997 and 8,614 shares of the Company's Common Stock issued to certain shareholders of the Company on February 14, 1997; (2) any purchase or redemption of Capital Stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan); provided, however, that (A) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from clauses (3)(B) or (3)(C) of Section (a); (3) any purchase or redemption of Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be issued pursuant to the provisions of Section 4.13 below; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (4) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted under Section 4.17 below; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (5) dividends paid within 60 days after the date of declaration if at such date of declaration such dividend would have complied with this provision; provided, however, that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or would result therefrom); provided further, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; (6) the repurchase of shares of, or options to purchase shares of, Capital Stock of the Company or any of its Subsidiaries from employees, former employees, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such common stock; provided, however, that the aggregate amount of such repurchases shall not exceed the sum of $1.0 million (unless, with respect to a deceased Person, to the extent such repurchases are funded out of the proceeds of such Person's life insurance policy of which the Company or a Restricted Subsidiary is a beneficiary) and the Net Cash Proceeds from the sale of Capital Stock to members of management or directors of the Company and its Subsidiaries that occurs after the Issue Date (to the extent the Net Cash Proceeds from the sale of such Capital Stock have not otherwise been applied to the payment of Restricted Payments by virtue of clause (3)(C) of paragraph (a) above); provided further, however, that (A) such repurchases shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(C) of paragraph (a) above; and (7) dividend, distribution or other payment on or with respect to Capital Stock to the extent payable in shares of Capital Stock of such Person (other than Disqualified Stock). 43 SECTION 4.11. Limitation on Restrictions on Distributions from ------------------------------------------------ Restricted Subsidiaries. ----------------------- The Company shall not, and shall not permit any Restricted Subsidiary to, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness or other obligation owed to the Company or a Restricted Subsidiary, (ii) make any loans or advances to the Company or (iii) transfer any of its property or assets to the Company, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date, including under the Revolving Credit Facility; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness or Preferred Stock issued by such Restricted Subsidiary or predecessor thereto on or prior to the date on which such Restricted Subsidiary or predecessor thereto (or assets thereof) was acquired by the Company (other than Indebtedness or Preferred Stock issued as consideration in, or to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary (or predecessor (or assets thereof)) became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (3) any encumbrance or restriction pursuant to an agreement effecting a refinancing of Indebtedness issued pursuant to an agreement referred to in clause (1) or (2) or contained in any amendment to an agreement referred to in clause (1) or (2); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any of such refinancing agreement or amendment, taken as a whole, are no less favorable to the Noteholders than encumbrances and restrictions with respect to such Restricted Subsidiary contained in such agreements as determined in good faith by the Board of Directors of the Company; (4) any such encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests or capital leases to the extent such provisions restrict the transfer of the lease; and (5) in the case of clause (iii) above, restrictions contained in security agreements securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements; (6) encumbrances or restrictions imposed by operation of applicable law; (7) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; (8) encumbrances or restrictions imposed upon the transfer, assignment or licensing or sublicensing of intellectual property including, copyrighted and patent material; and (9) encumbrances or restrictions imposed pursuant to Purchase Money Indebtedness and Capital Lease Obligations Incurred pursuant to the terms of this Indenture for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired. Notwithstanding the foregoing, neither (a) customary provisions restricting subletting or assignment of any lease entered into in the ordinary course of business, consistent with past practice, nor (b) Liens permitted under this Indenture, shall in and of themselves be considered a restriction on the ability of the applicable Restricted Subsidiary to transfer such agreements or assets, as the case may be. 44 SECTION 4.12. Limitation on Affiliate Transactions. ------------------------------------ (a) The Company shall not, and shall not permit any Restricted Subsidiary to, conduct any business or enter into any transaction or series of similar transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company or any legal or beneficial owner of 5% or more of any class of Capital Stock of the Company or with an Affiliate of any such owner (other than a Restricted Subsidiary of the Company or any employee stock ownership plan for the benefit of the Company's or a Restricted Subsidiary's employees) unless the terms of such business, transaction or series of transactions are (i) set forth in writing, (ii) as favorable to the Company or such Restricted Subsidiary as terms that would be obtainable at the time for a comparable transaction or series of similar transactions in arms-length dealings with an unrelated third Person and (iii) the disinterested members, if any, of the Board of Directors have, by resolution, determined in good faith that such business or transaction or series of transactions meets the criteria set forth in (ii) above; provided, however, that if such transaction involves an amount in excess of $2.5 million, the Company shall also obtain from a nationally recognized expert with experience in appraising the terms and conditions of the type of business or transactions an opinion that such transaction is fair from a financial point of view to the Company or its Restricted Subsidiary, as the case may be. (b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any Restricted Payment permitted to be made pursuant to Section 4.10, or any payment or transaction specifically excepted from the definition of Restricted Payment, (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors or the board of directors of the relevant Restricted Subsidiary, (iii) the grant of stock options or similar rights to employees and directors pursuant to plans approved by the Board of Directors or the board of directors of the relevant Restricted Subsidiary, (iv) loans or advances to officers, directors or employees in the ordinary course of business, (v) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries who are not employees of the Company or its Restricted Subsidiaries, (vi) any Affiliate transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, (vii) indemnification or insurance provided to officers or directors of the Company or any Subsidiary approved in good faith by the Board of Directors; (viii) payment of compensation and benefits to directors, officers and employees of the Company and its Subsidiaries approved in good faith by the Board of Directors; (ix) sales of Capital Stock of the Company to Affiliates; (x) fees or expense reimbursements paid to Windward and its Affiliates in accordance with the provisions of that certain Financial Services Advisory Agreement between the Company and Windward or that certain Fee Letter between the Company and Windward both dated as of February 14, 1997, in each case, as in effect on such date, without amendment; (xi) the purchase of or the payment of Indebtedness of or monies owed by the Company or any of its Restricted Subsidiaries for goods or materials purchased, or services received, in the ordinary course of business or (xii) customary investment banking fees to Credit Suisse First Boston. 45 SECTION 4.13. Limitation on Indebtedness. -------------------------- (a) The Company shall not Incur, directly or indirectly, any Indebtedness unless, on the date of such Incurrence, after giving pro forma effect thereto, the Consolidated EBITDA Coverage Ratio at the date of such issuance exceeds 2.0 to 1.0 if such Indebtedness is Incurred prior to May 15, 1999 and 2.25 to 1 if such Indebtedness is Incurred thereafter. (b) Notwithstanding clause (a), the Company may Incur the following Indebtedness: (i) Indebtedness Incurred pursuant to the Revolving Credit Facility; provided, however, that after giving pro forma effect to such Incurrence and the application of the net proceeds therefrom the aggregate amount of such Indebtedness outstanding at such time, together with the aggregate amount of all Indebtedness then outstanding and Incurred pursuant to clause (i) of Section 4.18 below shall not exceed the greater of (x) $25 million and (y) the sum of (A) 50% of the gross book value of the inventory of the Company and its Restricted Subsidiaries and (B) 85% of the gross book value of the accounts receivable of the Company and its Restricted Subsidiaries; (ii) Indebtedness owed to and held by a Wholly Owned or Foreign Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock that results in such Subsidiary ceasing to be a Wholly Owned or Foreign Subsidiary or any transfer of such Indebtedness (other than to a Wholly Owned or Foreign Subsidiary) shall be deemed, in each case, to constitute the issuance of such Indebtedness by the Company; (iii) the Notes and the Exchange Notes; (iv) Indebtedness (other than Indebtedness described in clause (i), (ii), or (iii) above) outstanding on Issue Date; (v) any Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (iii), (iv) or (viii) or this clause (v) or pursuant to clause (v) of Section 4.18 below; (vi) obligations of the Company pursuant to (A) interest rate swap or similar agreements designed to protect the Company against fluctuations in interest rates in respect of Indebtedness of the Company to the extent the notional principal amount of such obligation does not exceed the aggregate principal amount of the Indebtedness to which such interest rate contracts relate and (B) foreign exchange or commodity hedge, exchange or similar agreements designed to protect the Company against fluctuations in foreign currency exchange rates or commodity prices in respect of foreign exchange or commodity exposures Incurred by the Company in the ordinary course of its business; (vii) Indebtedness of the Company consisting of obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets by the Company or any Restricted Subsidiary permitted under this Indenture; (viii) Capital Lease Obligations, Purchase Money Indebtedness and Acquired Indebtedness in an aggregate principal amount, together with the principal amount of Indebtedness Incurred pursuant to clause (x) of Section 4.18, not exceeding $15 million at any one given time outstanding; and (ix) Indebtedness in an aggregate principal amount which, together with all other Indebtedness of the Company then outstanding (other than Indebtedness permitted by clauses (i) through (viii) of this Section or clause (a)) does not exceed $10 million (less the amount of any Subsidiary Indebtedness and Preferred Stock then outstanding and Incurred pursuant to clause (vii) of Section 4.18). (c) Notwithstanding Sections (a) and (b) above, and the provisions of Section 4.18, the Company shall not, and shall not permit any Restricted Subsidiary to issue any Indebtedness if the proceeds thereof are used, directly or indirectly, to repay, prepay, redeem, 46 defease, retire, refund or refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Notes or the relevant Subsidiary Guarantee, as applicable, to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with this Section 4.13, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. (e) For purposes of determining amounts of Indebtedness under this covenant, Indebtedness resulting from security interests granted with respect to Indebtedness otherwise included in the determination of Indebtedness, and Guarantees (and security interests with respect thereof) of, or obligations with respect to letters of credit supporting, Indebtedness otherwise included in the determination of Indebtedness shall not be included in the determination of Indebtedness. SECTION 4.14. Limitation on the Sale or Issuance of Capital Stock of ------------------------------------------------------ Restricted Subsidiaries. ----------------------- The Company shall not sell or otherwise dispose of any Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any of its Capital Stock except (i) to the Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving effect to such issuance, sale or other disposition, neither the Company nor any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary, (iii) if, immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary (x) would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect thereto would have been permitted to be made under Section 4.10 if made on the date of such issuance, sale or other disposition or (y) would remain a Restricted Subsidiary or (iv) directors' qualifying shares. SECTION 4.15. Limitation on Other Senior Subordinated Debt. -------------------------------------------- The Company will not, and will not permit any Restricted Subsidiary to, create, Incur, assume, guarantee or in any other manner become liable with respect to any Indebtedness, other than the Notes, that is subordinate in right of payment to any Senior Indebtedness of the Company or any such Restricted Subsidiary, unless such Indebtedness is also pari passu with, or subordinate in right of payment to, the Notes, or the relevant Subsidiary Guarantee, as the case may be. SECTION 4.16. Change of Control. ----------------- (a) Upon a Change of Control, each Holder shall have the right to require that the Company repurchase such Holder's Notes at a purchase price in cash equal to 101% of the 47 principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date), in accordance with the terms contemplated in Section 4.16(b). If at the time of such Change of Control the terms of the Senior Indebtedness of the Company restrict or prohibit the repurchase of Notes pursuant to this Section, then prior to the mailing of the notice to Holders provided for in Section 4.16(b) below but in any event within 90 days following any Change of Control, the Company shall obtain the requisite consent under the agreements governing such Senior Indebtedness of the Company to permit the repurchase of the Notes as provided for in Section 4.16(b). (b) Within 30 days following any Change of Control, the Company shall mail a notice to the Trustee and each Holder stating: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization, each after giving effect to such Change of Control); (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by the Company, consistent with this Section, that a Holder must follow in order to have its Notes purchased. (c) Holders electing to have a Note purchased will be required to surrender the Note, with an appropriate form (as provided for in Exhibit A or B, as appropriate) duly completed, to the Company at the address specified in the notice at least two Business Days prior to the purchase date. Holders will be entitled to withdraw their election if the Trustee or the Company receives not later than 3 p.m. New York City time two Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Note purchased. (d) On the purchase date, all Notes purchased by the Company under this Section shall be delivered to the Trustee for cancellation, and the Company shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto. (e) At the time the Company delivers Notes to the Trustee which are to be accepted for purchase, the Company shall also deliver an Officers' Certificate stating that such Notes are to be accepted by the Company pursuant to and in accordance with the terms of this 48 Section. A Note shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. (f) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.17. Limitation on Sales of Assets and Subsidiary Stock. -------------------------------------------------- (a) The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Disposition unless: (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value, as determined in good faith by the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition and at least 85% of the consideration thereof received by the Company or such Restricted Subsidiary, as the case may be, is in the form of cash or Cash Equivalents; and (ii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be): (A) first, to the extent the Company elects (or is required by the terms of any Senior Indebtedness of the Company), to prepay, repay or purchase Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a Wholly Owned Subsidiary or such Restricted Subsidiary (in each case other than Indebtedness owed to the Company or a Subsidiary) within 60 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), at the Company's election to the investment by the Company or any Wholly Owned Subsidiary or such Restricted Subsidiary in assets to replace the assets that were the subject of such Asset Disposition or an asset that (as determined in good faith by the Board of Directors) will be used in the business of the Company and the Wholly Owned Subsidiaries existing on the Issue Date or in businesses reasonably related thereto ("Replacement Assets"), in each case within the later of 270 days from the date of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to purchase Notes at par (and any other Senior Subordinated Indebtedness designated by the Company, at a price no greater than par) plus accrued and unpaid interest; and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), to (x) the acquisition by the Company or any Wholly Owned Subsidiary or such Restricted Subsidiary of Tangible Property to be used in the business of the Company and the Wholly Owned Subsidiaries existing on the Issue 49 Date or such Restricted Subsidiary or in businesses reasonably related thereto or (y) the prepayment, repayment or purchase of Indebtedness (other than any Disqualified Stock) of the Company (other than Indebtedness owed to a Subsidiary of the Company) or Indebtedness of any Subsidiary (other than Indebtedness owed to the Company or a Subsidiary of the Company), in each case within 270 days from the later of the receipt of such Net Available Cash and the date the offer is consummated; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such Subsidiary shall retire such Indebtedness and cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this Section, the Company and its Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this Section except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this Section exceeds $2.5 million. Pending application of Net Available Cash pursuant to this Section, such Net Available Cash shall be invested in Permitted Investments. For the purposes of this Section 4.17, the following are deemed to be cash or cash equivalents: (x) the express assumption of Indebtedness of the Company or any Restricted Subsidiary and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 120 days of closing the transaction. (b) In the event of an Asset Disposition that requires the purchase of Notes (and other Senior Subordinated Indebtedness of the Company) pursuant to Section 4.17(a)(ii)(C), the Company shall be required to purchase Notes tendered pursuant to an offer by the Company for the Notes (and other Senior Subordinated Indebtedness of the Company) (the "Offer") at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness of the Company, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Indebtedness of the Company) in accordance with the procedures (including prorating in the event of oversubscription) set forth in Section 4.17(c). If the aggregate purchase price of Notes (and any other Senior Subordinated Indebtedness of the Company) tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase thereof, the Company shall be required to apply the remaining Net Available Cash in accordance with Section 4.17(a)(ii)(D). The Offer shall remain open for a period of 20 Business Days. The Company shall not be required to make an Offer to purchase Notes (and other Senior Subordinated Indebtedness of the Company) pursuant to this Section 4.17 if the Net Available Cash available therefor is less than $2,500,000 (which lesser amount shall be carried forward for purposes of determining whether such an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) (1) Promptly, and in any event within 30 days after the Company becomes obligated to make an Offer, the Company shall be obligated to deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect 50 to have his Notes purchased by the Company either in whole or in part (subject to prorating as hereinafter described in the event the Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Purchase Date") and shall contain such information concerning the business of the Company which the Company in good faith believes will enable such Holders to make an informed decision. (2) Not later than the date upon which written notice of an Offer is delivered to the Trustee as provided below, the Company shall deliver to the Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset Dispositions pursuant to which such Offer is being made and (iii) the compliance of such allocation with the provisions of Section 4.17(a). Upon the expiration of the period for which the Offer remains open (the "Offer Period"), the Company shall deliver to the Trustee for cancellation the Notes or portions thereof which have been properly tendered to and are to be accepted by the Company. The Trustee shall, on the Purchase Date, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the aggregate purchase price of the Notes delivered by the Company to the Trustee is less than the Offer Amount, the Trustee shall deliver the excess to the Company immediately after the expiration of the Offer Period for application in accordance with this Section. (3) Holders electing to have a Note purchased shall be required to surrender the Note, with an appropriate form duly completed, to the Company at the address specified in the notice at least two Business Days prior to the Purchase Date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives not later than 3:00 p.m., New York City time, one Business Day prior to the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Note purchased. If at the expiration of the Offer Period the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis taking into account any other tendered Senior Subordinated Indebtedness which is the subject of such offer (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased). Holders whose Notes are purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. (4) At the time the Company delivers Notes to the Trustee which are to be accepted for purchase, the Company shall also deliver an Officers' Certificate stating that such Notes are to be accepted by the Company pursuant to and in accordance with the terms of this Section. A Note shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. 51 (d) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.18. Limitation on Indebtedness and Preferred Stock of ------------------------------------------------- Restricted Subsidiaries. ----------------------- The Company shall not permit any Restricted Subsidiary to Incur, directly or indirectly, any Indebtedness or Preferred Stock except: (i) Indebtedness Incurred pursuant to the Revolving Credit Facility or any other revolving credit arrangement; provided, however, that, after giving pro forma effect to such Incurrence and the application of the proceeds therefrom, the aggregate amount of such Indebtedness outstanding at such time, together with the aggregate amount of all Indebtedness then outstanding and issued pursuant to clause (b)(i) of Section 4.13 above, shall not exceed the greater of (x) $25 million and (y) the sum of (A) 50% of the gross book value of the inventory of the Company and its Restricted Subsidiaries and (B) 85% of the gross book value of the accounts receivable of the Company and its Restricted Subsidiaries; (ii) Indebtedness or Preferred Stock issued to and held by the Company or a Wholly Owned or Foreign Subsidiary; provided, however, that (A) any subsequent issuance or transfer of any Capital Stock that results in any such Subsidiary ceasing to be a Wholly Owned or Foreign Subsidiary or (B) any subsequent transfer of such Indebtedness or Preferred Stock (other than to the Company or a Wholly Owned or Foreign Subsidiary) shall be deemed, in each case, to constitute the issuance of such Indebtedness or Preferred Stock by the issuer thereof; (iii) Acquired Indebtedness of such Restricted Subsidiary; provided that after giving effect to the Incurrence of such Acquired Indebtedness, the Company could incur $1.00 of Indebtedness pursuant to clause (a) under Section 4.13; (iv) Indebtedness or Preferred Stock (other than any described in clause (i), (ii) or (iii)) outstanding on the Issue Date; (v) Refinancing Indebtedness Incurred in respect of Indebtedness or Preferred Stock referred to in clause (iii), (iv) or (x) or this clause (v); provided, however, that to the extent such Refinancing Indebtedness Refinances Acquired Indebtedness or Preferred Stock of a Restricted Subsidiary that is not a Wholly Owned Subsidiary, such Refinancing Indebtedness shall be Incurred only by such Restricted Subsidiary; (vi) Obligations of a Restricted Subsidiary pursuant to (A) interest rate swap or similar agreements designed to protect such Restricted Subsidiary against fluctuations in interest rates in respect of the Indebtedness of such Restricted Subsidiary to the extent the notional principal amount of such obligation does not exceed the aggregate principal amount of the Indebtedness to which such interest rate contracts relate and (B) foreign exchange or commodity hedge, exchange or similar agreements designed to protect such Restricted Subsidiary against fluctuations in foreign currency exchange rates or commodity prices in respect of foreign exchange or commodity exposures Incurred by such Restricted Subsidiary in the ordinary course of its business; (vii) Indebtedness consisting of the Subsidiary Guarantees; (viii) Indebtedness of any Restricted Subsidiary consisting of Obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets by any Restricted 52 Subsidiary permitted under this Indenture; (ix) Capital Lease Obligations, Purchase Money Indebtedness and Acquired Indebtedness in an aggregate principal amount not exceeding, together with the principal amount of Indebtedness Incurred pursuant to clause (viii) of Section 4.13, $15 million at any one given time outstanding; and (x) Indebtedness and Preferred Stock in an aggregate principal amount which, together with any other Indebtedness or Preferred Stock of Restricted Subsidiaries then outstanding (other than Indebtedness or Preferred Stock permitted by clauses (i) through (ix) of this Section) does not exceed $10 million (less the amount of any Indebtedness then outstanding and Incurred pursuant to clause (b)(ix) of Section 4.13). SECTION 4.19. Limitation on Liens Securing Subordinated Indebtedness. ------------------------------------------------------ The Company will not, and will not permit any Restricted Subsidiary to, create, Incur, assume or suffer to exist any Liens of any kind (other than Permitted Liens) upon any of their respective assets or properties now owned or acquired after the date of this Indenture or any income or profits therefrom securing: (i) any Indebtedness of the Company or a Restricted Subsidiary which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company or such Restricted Subsidiary, as the case may be, unless the Notes or the relevant Subsidiary Guarantee, as the case may be, are equally and ratably secured for so long as such Indebtedness is so secured; provided that, if such Indebtedness which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company or a Restricted Subsidiary is expressly subordinate or junior to the Notes or the relevant Subsidiary Guarantee, as the case may be, then the Lien securing such subordinated or junior Indebtedness shall be subordinate and junior to the Lien securing the Notes or the relevant Subsidiary Guarantee, as the case may be, with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Notes or the relevant Subsidiary Guarantee, as the case may be; provided further, that this clause (i) shall not be applicable to any Liens securing any such Indebtedness which became Indebtedness of the Company or a Restricted Subsidiary pursuant to a transaction permitted under Section 5.01 or Liens securing Acquired Indebtedness and, in each case, which Liens were in existence at the time of such transaction or Incurrence of such Acquired Indebtedness (unless such Indebtedness was Incurred in connection with, or in contemplation of, such transaction or Incurrence) so long as such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets such Liens covered before the consummation of such transaction or Incurrence of such Acquired Indebtedness; (ii) any assumption, guarantee or other liability of the Company or any Restricted Subsidiary in respect of any Indebtedness of the Company or a Restricted Subsidiary which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company or such Restricted Subsidiary, unless the Notes or the relevant Subsidiary Guarantee, as the case may be, is equally and ratably secured for so long as such assumption, guaranty or other liability is so secured; provided that, if such subordinated Indebtedness which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company or a Restricted Subsidiary is expressly by its terms subordinate or junior to the Notes or the relevant Subsidiary Guarantee, as the case may be, then the Lien securing the assumption, guarantee or other liability of such Subsidiary shall be subordinate and junior to the Lien securing the Notes or the relevant Subsidiary Guarantee, as 53 the case may be, with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Notes or the relevant Subsidiary Guarantee, as the case may be; provided, further, that this clause (ii) shall not be applicable to Liens securing any such assumption, guarantee or other liability which existed at the time such Subsidiary became a Subsidiary or acquired the assets subject to such Lien and which Liens were in existence at the time of such transaction (unless such assumption, guarantee or other liability was Incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or in contemplation of the acquisition of such Assets), so long as such Liens do not extend to or cover any property or assets of the Company or any Subsidiary other than the property or assets of such Person or other than the property or assets so acquired, as the case may be. SECTION 4.20. Future Subsidiary Guarantors. ---------------------------- If, after the Issue Date, any Restricted Subsidiary Incurs any Indebtedness pursuant to clause (i) of Section 4.18 above, the Company shall cause such Restricted Subsidiary to Guarantee the Notes pursuant to a Subsidiary Guarantee and to execute and deliver a supplemental indenture to this Indenture and shall cause all Indebtedness of such Restricted Subsidiary owing to the Company or any other Subsidiary of the Company and not previously discharged (and not pledged under the Revolving Credit Facility) to be converted into Capital Stock of such Restricted Subsidiary (other than Disqualified Stock). SECTION 4.21. Limitation on Designations of Unrestricted ------------------------------------------ Subsidiaries. ------------ (a) The Company may designate any Subsidiary of the Company (other than a Subsidiary Guarantor) as an "Unrestricted Subsidiary" (a "Designation") only if: (i) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (ii) either (x) the assets of such Subsidiary do not exceed $1,000 or (y) the Company would be permitted under this Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to fair market value of the Capital Stock of such Subsidiary as determined in good faith by the Board of Directors on such date; and (iii) the Company would be permitted under this Indenture to Incur $1.00 of additional Indebtedness pursuant to clause (a) of Section 4.10 above at the time of Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to Section 4.10 for all purposes of this Indenture in the Designation Amount. The Company shall not and shall not permit any Restricted Subsidiary to, at any time (A) provide credit support for, or a guarantee of, any Indebtedness of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness), (B) be directly or indirectly liable for any Indebtedness which 54 provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary), except in the case of clause (A) or (B) to the extent permitted under Section 4.10. (b) The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: (i) no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if Incurred at such time, have been permitted to be Incurred for all purposes of this Indenture and for all purposes of this Indenture shall be deemed to have been Incurred at such time. (c) All Designations and Revocations must be evidenced by resolutions of the Board of Directors delivered to the Trustee certifying compliance with the foregoing provisions. (d) Notwithstanding the foregoing, no Subsidiary that is a Subsidiary Guarantor as of the Issue Date shall be permitted to become an Unrestricted Subsidiary. ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets of the ----------------------------------------------- Company. ------- The Company shall not, in a single transaction or a series of related transactions, consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets (computed on a consolidated basis) to, any Person, unless: (i) the resulting, surviving or transferee Person (if not the Company) shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and such Person shall expressly assume, by an indenture supplemental to this Indenture, executed and delivered to the Trustee, all the obligations of the Company under the Notes and this Indenture; (ii) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person or any Subsidiary as a result of such transaction as having been Incurred by such Person or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the resulting, surviving or transferee Person would be able to Incur at least $1.00 of Indebtedness pursuant to Section (a) of Section 4.13; (iv) immediately after giving effect to such transaction, the resulting, surviving 55 or transferee Person shall have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company prior to such transaction; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and if a supplemental indenture is required, an Opinion of Counsel (in no event, however, shall such Opinion of Counsel cover financial ratios, the solvency of any Person or any other financial or statistical data or information), each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture. SECTION 5.02. Successor Corporation Substituted for the Company. ------------------------------------------------- Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Notes with the same effect as if such surviving entity had been named as such, and the predecessor company, in the case of a conveyance, transfer or lease, shall be released from the obligation to pay the principal of and interest on the Notes. SECTION 5.03. Merger, Consolidation and Sale of Assets of Any ----------------------------------------------- Subsidiary Guarantor. -------------------- The Company will not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to any Person unless: (i) the resulting, surviving or transferee Person (if not such Subsidiary) shall be a Person organized and existing under the laws of the jurisdiction under which such Subsidiary was organized or under the laws of the United States of America, or any State thereof or the District of Columbia, and such Person shall expressly assume, by executing a Subsidiary Guarantee, all the obligations of such Subsidiary, if any, under its Subsidiary Guarantee; (ii) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been Incurred by such Person at the time of such transaction), no Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Company would be able to Incur at least $1.00 of Indebtedness pursuant to Section 4.13(a); and (iv) the Company delivers to the Trustee an Officers' Certificate and, if a supplemental indenture is required, an Opinion of Counsel (in no event, however, shall such Opinion of Counsel cover financial ratios, the solvency of any Person or any other financial or statistical data or information), each stating that such consolidation, merger or transfer and, such Subsidiary Guarantee, if any, complies with this Indenture. The provisions of clauses (i), (ii) and (iii) above shall not apply to any one or more transactions which constitute an Asset Disposition if the Company has complied with the applicable provisions of Section 4.17 above. 56 SECTION 5.04. Successor Corporation Substituted for Subsidiary ------------------------------------------------ Guarantor. --------- Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of any Subsidiary Guarantor in accordance with the foregoing, in which such Subsidiary Guarantor is not the continuing corporation, the successor Person formed by such consolidation or into which such Subsidiary Guarantor is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, such Subsidiary Guarantor under this Indenture with the same effect as if such surviving entity had been named as such. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default. ----------------- An "Event of Default" occurs if: (1) the Company defaults in the payment of interest on any Notes when the same becomes due and payable (whether or not such payment shall be prohibited by Article Ten of this Indenture) and the Default continues for a period of 30 days; or (2) the Company defaults in the payment of the principal on any Notes when such principal becomes due and payable (whether or not such payment shall be prohibited by Article Ten), at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control under Section 4.16 or an Offer under Section 4.17); or (3) the failure by the Company to comply with its obligations under Section 5.01 above; or (4) the failure by the Company to comply for 30 days after notice with any of its obligations under Sections 4.08, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16 (other than a failure to purchase the Notes), 4.17 (other than a failure to purchase the Notes), 4.18, 4.19, 4.20 and 4.21; or (5) the Company defaults in the observance or performance of any other covenant or agreement contained in this Indenture and which default continues for a period of 60 days after notice; or (6) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders 57 thereof because of a default and the total amount of Indebtedness unpaid or accelerated together with the principal amount of any other such Indebtedness which is unpaid or which has been accelerated, exceeds $5.0 million at any time; or (7) the Company or any Significant Subsidiary of the Company (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to the appointment of a Custodian of it or for substantially all of its property, (D) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (E) makes a general assignment for the benefit of its creditors, or (F) takes any corporate action to authorize or effect any of the foregoing; or (8) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company or any Significant Subsidiary of the Company in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company or any such Significant Subsidiary, (B) appoint a Custodian of the Company or any such Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (9) any judgment or decree for the payment of money in an aggregate amount in excess of $5.0 million shall have been rendered against the Company or any of its Significant Subsidiaries and is not discharged and either (A) an enforcement proceeding has been commenced by any Creditor upon such judgment or decree or (B) there is a period of 60 days following such judgment during which such judgment or decree is not discharged, waived or the execution thereof stayed; or (10) any Subsidiary Guarantee by a Significant Subsidiary ceases to be in full force and effect (other than in accordance with the terms of the Subsidiary Guarantee) or any Subsidiary Guarantor that is a Significant Subsidiary denies or disaffirms its obligations under its Subsidiary Guarantee. However, a default under clause (4), (5) or (9) will not constitute an Event of Default until the Trustee or the Holders of 25% in principal amount of the outstanding Notes notify the Company of the default and the Company does not cure such default within the time specified after receipt of such notice. The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any Event of Default under clause (6) or (10) and any event which with the giving of notice or the lapse of time would become an Event of Default under clause (4), (5) or (9), its status and what action the Company is taking or proposes to take with respect thereto. 58 SECTION 6.02. Acceleration. ------------ (a) If an Event of Default (other than an Event of Default specified in Section 6.01(7) or (8) with respect to the Company) occurs and is continuing, and has not been waived pursuant to Section 6.04, then the Trustee, by written notice to the Company, or the Holders of at least 25% in principal amount of outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration". Upon any such declaration, such amount shall be immediately due and payable. (b) If an Event of Default with respect to Section 6.01(7) or (8) relating to the Company occurs and is continuing with respect to the Company, the principal of and interest on all the Notes will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. (c) The Holders of a majority in principal amount of the Notes may, on behalf of the Holders of all of the Notes, rescind and cancel an acceleration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (iv) in the event of the cure or waiver of an Event of Default of the type described in Section 6.01(7) or 6.01(8), the Trustee shall have received an Officers' Certificate and an Opinion of Counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. Other Remedies. -------------- If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. Waiver of Past Defaults. ----------------------- Subject to Sections 2.09, 6.07 and 9.02, the Holders of a majority in principal amount of the outstanding Notes by notice to the Trustee may waive an existing Default or Event 59 of Default and its consequences, except a Default in the payment of principal of or interest on any Note as specified in clauses (1) and (2) of Section 6.01. When a Default or Event of Default is waived, it is cured and ceases. SECTION 6.05. Control by Majority. ------------------- Subject to Section 2.09, the Holders of a majority in principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 6.03. Subject to Section 7.01, however, the Trustee may refuse to follow any direction that the Trustee reasonably believes conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Holder, or that may involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and provided further, that this provision shall not affect the rights of the Trustee set forth in Section 7.01(d). SECTION 6.06. Limitation on Suits. ------------------- Subject to Article Seven, if an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee indemnity or security against any loss, liability or expense reasonably satisfactory to the Trustee. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder of a Note may pursue any remedy with respect to this Indenture or the Notes unless (i) such Holder has previously given the Trustee notice that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy, (iii) such Holders have offered the Trustee security or indemnity against any loss, liability or expense reasonably satisfactory to the Trustee, (iv) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity and (v) the Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. SECTION 6.07. Rights of Holders To Receive Payment. ------------------------------------ Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. -------------------------- If an Event of Default in payment of principal or interest specified in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own 60 name and as trustee of an express trust against the Company or any other obligor on the Notes for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest at the rate set forth in Section 4.01 and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents, consultants and counsel. SECTION 6.09. Trustee May File Proofs of Claim. -------------------------------- The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relating to the Company or any other obligor upon the Notes, any of their respective creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, if the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agents, consultants and counsel, and any other amounts due the Trustee under Section 7.07. The Company's payment obligations under this Section 6.09 shall be secured in accordance with the provisions of Section 7.07 hereunder. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. Priorities. ---------- If the Trustee collects any money or property pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.07; Second: if the Holders are forced to proceed against the Company directly without the Trustee, to Holders for their collection costs; Third: to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and Fourth: to the Company or any other obligor on the Notes, as their interests may appear, or as a court of competent jurisdiction may direct. 61 The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. --------------------- In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in principal amount of the outstanding Notes. ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee. ----------------- (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) Notwithstanding anything to the contrary herein contained, the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. 62 (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.02, 6.04 or 6.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not assured to it. (e) Whether or not herein expressly provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01. (f) The Trustee shall not be liable for interest on any money or assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. SECTION 7.02. Rights of Trustee. ----------------- Subject to Section 7.01: (a) The Trustee may rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate, an Opinion of Counsel or both, which shall conform to Sections 13.04 and 13.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. (c) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or indirectly or by or through agents or attorneys and the Trustee shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers; 63 provided, however that the Trustee's conduct does not constitute wilful misconduct, negligence or bad faith. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, upon reasonable notice to the Company, to examine the books, records, and premises of the Company, personally or by agent or attorney and to consult with the officers and representatives of the Company, including the Company's accountants and attorneys. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which may be incurred by it in compliance with such request, order or direction. (g) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (h) The Trustee may determine (i) the execution by any Holder of any instrument in writing, (ii) the date of such execution or (iii) the authority of any Person executing the same, in any manner the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine. (i) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. SECTION 7.03. Individual Rights of Trustee. ---------------------------- The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, any Subsidiary of the Company, or their respective Affiliates with the same rights it would have if it were not Trustee. However, if the Trustee acquires any conflicting interest within the meaning of Section 3.10(b) of the TIA, it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. 64 SECTION 7.04. Trustee's Disclaimer. -------------------- The Offering Memorandum and the recitals contained herein and in the Notes shall be taken as statements of the Company and the Trustee assumes no responsibility for their correctness. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Notes, and it shall not be accountable for the Company's use of the proceeds from the Notes, and it shall not be responsible for any statement of the Company in this Indenture or the Notes other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Default. ----------------- If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder notice of the Default within 90 days after such Default occurs. Except in the case of a Default in payment of principal of, or interest on, any Note, including an accelerated payment and the failure to make payment on the purchase date pursuant to a Change in Control under Section 4.16 or on the Purchase Date pursuant to an Offer under Section 4.17 and, except in the case of a failure to comply with Article Five hereof, the Trustee may withhold the notice if and so long as its board of directors, the executive committee of its board of directors or a committee of its Trust Officers in good faith determines that withholding the notice is in the interest of the Holders. In addition, the Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Company also shall deliver to the Trustee pursuant to Section 6.01, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof. SECTION 7.06. Reports by Trustee to Holders. ----------------------------- Within 60 days after each May 15, beginning with the May 15 following the date of this Indenture, the Trustee shall, to the extent that any of the events described in TIA (S) 313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief report dated as of such date that complies with TIA (S) 313(a). The Trustee also shall comply with TIA (S)(S) 313(b) and (c). The Company shall promptly notify the Trustee if the Notes become listed on, or delisted from, any stock exchange and the Trustee shall comply with TIA (S) 313(d). SECTION 7.07. Compensation and Indemnity. -------------------------- The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable fees and expenses, including out-of-pocket expenses incurred or made by it in connection with the performance of its duties under this Indenture. Such expenses shall include the reasonable fees and expenses of the Trustee's agents, consultants, experts and counsel. 65 The Company shall indemnify the Trustee and its agents, employees, stockholders and directors and officers for, and hold them harmless against, any loss, liability or expense incurred by them, arising out of or in connection with the administration of this trust including the reasonable costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their rights, powers or duties hereunder. The Company need not reimburse any expense or indemnify against any loss, liability or expense Incurred by the Trustee through the Trustee's own willful misconduct, negligence or bad faith. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. At the Trustee's sole discretion, the Company shall defend the claim and the Trustee shall cooperate and may participate in the defense; provided that any settlement of a claim shall be approved in writing by the Trustee. Alternatively, the Trustee may at its option have separate counsel of its own choosing and the Company shall pay the reasonable fees and expenses of such counsel; provided that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between the Company and the Trustee in connection with such defense as reasonably determined by the Trustee. The Company need not pay for any settlement made without its written consent. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Notes on all assets or money held or collected by the Trustee, in its capacity as Trustee, except assets or money held in trust to pay principal of or interest on particular Notes. The Trustee's right to receive payment of any amounts due under this Section 7.07 shall not be subordinate to any other liability or indebtedness of the Company (even though the Notes may be subordinate to such other liability or indebtedness). When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(7) or (8) occurs, such expenses and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law; provided, however, that this shall not affect the Trustee's rights as set forth in the preceding paragraph or Section 6.10. SECTION 7.08. Replacement of Trustee. ---------------------- The Trustee may resign at any time by so notifying the Company in writing at least 30 days prior to the date of the proposed resignation. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Company and the Trustee and may appoint a successor Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; 66 (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed as Trustee or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger, Etc. -------------------------------- If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee; provided that such corporation shall be otherwise qualified and eligible under this Article Seven. If at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trust created by this Indenture any of the Notes shall have been authenticated but not delivered, any successor to the Trustee may adopt a certificate of authentication of any predecessor Trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which 67 it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. Eligibility; Disqualification. ----------------------------- This Indenture shall always have a Trustee who satisfies the requirement of TIA (S)(S) 310(a)(1), (2) and (5). The Trustee (or, in the case of a corporation included in a bank holding company system, the related bank holding company) shall have a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. In addition, if the Trustee is a corporation included in a bank holding company system, the Trustee, independently of such bank holding company, shall meet the capital requirements of TIA (S) 310(a)(2). The Trustee shall comply with TIA (S) 310(b); provided, however, that there shall be excluded from the operation of TIA (S) 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. The provisions of TIA (S) 310 shall apply to the Company, as obligor of the Notes. SECTION 7.11. Preferential Collection of Claims Against Company. ------------------------------------------------- The Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. 68 ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Discharge of Liability on Notes; Defeasance. ------------------------------------------- (a) When (i) the Company delivers to the Trustee all outstanding Notes (other than Notes replaced pursuant to Section 2.07) for cancellation or (ii) all outstanding Notes have become due and payable at maturity or will be due and payable within 60 days as a result of the mailing of a notice of redemption pursuant to Article 3 hereof, in each case, and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Notes, including interest thereon to maturity or such redemption date (other than Notes replaced pursuant to Section 2.07), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 8.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel as to the satisfaction of all conditions to such satisfaction and discharge of this Indenture and at the cost and expense of the Company. (b) Subject to Sections 8.01(c) and 8.02, the Company at any time may terminate (i) all its obligations under the Notes and this Indenture ("legal defeasance option") or (ii) its obligations under Sections 4.04, 4.05 and 4.08 and Sections 4.10 through 4.21 and the operation of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) and the limitations contained in Sections 5.01(a)(iii) and (iv) ("covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) or because of the failure of the Company to comply with Section 5.01(a)(iii) or (iv) or Section 5.01(b)(iii). If the Company exercises its legal defeasance option or its covenant defeasance option, each Subsidiary Guarantor, if any, shall be released from all its obligations under its Subsidiary Guarantee. Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07, 7.08, 8.05 and 8.06 shall survive until the Notes have been paid in full. Thereafter, the Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive. 69 SECTION 8.02. Conditions to Defeasance. ------------------------ The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Notes to maturity or redemption, as the case may be; (2) in the case of a deposit of U.S. Government Obligations, the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Notes to maturity or redemption, as the case may be; (3) (x) no Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit and (y) no Event of Default under Section 6.01(7) or (8) shall occur at any time in the period ending on the 123rd day after the date of such deposit (it being understood that the condition set forth in the preceding clause (y) is a condition subsequent which shall not be deemed satisfied until the expiration of such 123-day period, but in the case of the covenant defeasance, the covenants which are defeased under Section 8.01(b)(2) will cease to be in effect unless an Event of Default under Section 6.01(7) or (8) occurs during such period); (4) the Company delivers to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company and the deposit is not prohibited under any Designated Senior Indebtedness; (5) neither the deposit nor the defeasance shall result in a default or event of default under any other material agreement to which the Company is a party or by which the Company is bound and neither shall be prohibited by Article 10; (6) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (7) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm 70 that, the Noteholders will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (8) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Noteholders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (9) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Notes as contemplated by this Article 8 have been complied with. Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Notes at a future date in accordance with Article Three. SECTION 8.03. Application of Trust Money. -------------------------- The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article Eight. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Notes. Money and securities so held in trust are not subject to Article 10. SECTION 8.04. Repayment to Company. -------------------- The Trustee and the Paying Agent shall promptly turn over to the Company, upon delivery of an Officers' Certificate stating that such payment does not violate the terms of this Indenture, any excess money or securities held by them at any time, subject to Section 7.07. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon its written request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Noteholders entitled to the money must look to the Company for payment as general creditors. SECTION 8.05. Indemnity for Government Obligations. ------------------------------------ The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. 71 SECTION 8.06. Reinstatement. ------------- If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or U.S. Government Obligations in accordance with this Article Eight by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to this Article Eight until such time as the Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance with this Article 8; provided, however, that, if the Company has made any payment of interest on or principal of any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders. -------------------------- The Company, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Notes without notice to or consent of any Holder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not, in the opinion of the Trustee, adversely affect the rights of any Holder in any material respect; (2) to comply with Article Five; (3) to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code); (4) to comply with any requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (5) to make any change that would provide any additional benefit or rights to the Holders or that does not adversely affect the rights of any Holder; or to surrender any right or power conferred upon the Company; (6) to add Guarantees with respect to the Notes; 72 (7) to secure the Notes; or (8) to make any other change that does not, in the opinion of the Trustee, adversely affect in any material respect the rights of any Holders hereunder; provided that the Company has delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 9.01. After an amendment, supplement or waiver under this Section 9.01 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplement or waiver. SECTION 9.02. With Consent of Holders. ----------------------- Subject to Section 6.07, the Company, when authorized by a Board Resolution, and the Trustee, together, with the written consent of the Holder or Holders of at least a majority in aggregate principal amount of the outstanding Notes, may amend or supplement this Indenture or the Notes, without notice to any other Holders. Subject to Section 6.07, the Holder or Holders of a majority in aggregate principal amount of the outstanding Notes may waive compliance by the Company with any provision of this Indenture or the Notes without notice to any other Holder. No amendment, supplement or waiver, including a waiver pursuant to Section 6.04, shall, without the consent of each Holder of each Note affected thereby: (1) reduce the amount of Notes whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Notes; (3) reduce the principal of or change or have the effect of changing the Stated Maturity of any Note, or change the date on which any Notes may be subject to redemption or repurchase, or reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed in accordance with Article 3; (4) make any Notes payable in money other than that stated in the Notes; (5) make any change in Section 6.04 or Section 6.07 or the second sentence of this Section; (6) amend, modify, change or waive any provision of this Section 9.02; (7) modify Articles Ten or Twelve or the definitions used in Articles Ten or Twelve to adversely affect the Holders of the Notes; or 73 (8) make any change in any Subsidiary Guarantee that would adversely affect the Holders. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplement or waiver. SECTION 9.03. Effect on Senior Indebtedness. ----------------------------- No amendment of this Indenture shall adversely affect the rights of any holder of Senior Indebtedness of the Company or any Restricted Subsidiary under Article Ten or Twelve of this Indenture, without the consent of such holder (or its Representative). SECTION 9.04. Compliance with TIA. ------------------- Every amendment, waiver or supplement of this Indenture or the Notes shall comply with the TIA as then in effect. SECTION 9.05. Revocation and Effect of Consents. --------------------------------- Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. Subject to the following paragraph, any such Holder or subsequent Holder may revoke the consent as to such Holder's Note or portion of such Note by notice to the Trustee or the Company received before the date the amendment, supplement or waiver becomes effective. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (1) through (9) of Section 9.02, 74 in which case, the amendment, supplement or waiver shall bind only each Holder of a Note who has consented to it and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 9.06. Notation on or Exchange of Notes. -------------------------------- If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder of such Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Any such notation or exchange shall be made at the sole cost and expense of the Company. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment, supplement or waiver. SECTION 9.07. Trustee To Sign Amendments, Etc. ------------------------------- The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. Such Opinion of Counsel shall not be an expense of the Trustee. SECTION 9.08. Payment for Consent. ------------------- Neither the Company nor any Affiliate of the Company shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes, unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. 75 ARTICLE TEN SUBORDINATION SECTION 10.01. Notes Subordinated to Senior Indebtedness. ----------------------------------------- The Company covenants and agrees, and each Holder of the Notes, by its acceptance thereof, likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article Ten; and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that the payment of all Obligations on the Notes by the Company shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash of all Senior Indebtedness of the Company; that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness of the Company, and that each holder of Senior Indebtedness of the Company whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Senior Indebtedness of the Company in reliance upon the covenants and provisions contained in this Indenture and the Notes. Only Indebtedness of the Company that is Senior Indebtedness of the Company will rank senior to the Notes in accordance with the provisions of the Indenture. The Notes will in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company. Unsecured Indebtedness is not deemed to be subordinated or junior to secured Indebtedness merely because it is unsecured. The terms of the subordination provisions described in this Article Ten shall not apply to payments from money or the proceeds of U.S. Government Obligations in trust by the Trustee for the payment of principal and interest on the Notes pursuant to the provisions described in Article Eight unless such payments were in violation of Designated Senior Indebtedness. SECTION 10.02. No Payment on Notes in Certain Circumstances. -------------------------------------------- (a) The Company may not, and no other Person on behalf of the Company may pay principal of, premium (if any) or interest on the Notes or make any other payments with respect to the Notes or make any deposit pursuant to the provisions described under Article Eight above and may not repurchase, redeem or otherwise retire any Notes (collectively, "pay the Notes") if (i) any Designated Senior Indebtedness of the Company is not paid when due beyond any applicable grace period whether at maturity, upon redemption, by declaration or otherwise or (ii) any other default on Designated Senior Indebtedness of the Company occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, the default has been cured or waived in writing and any such acceleration has been rescinded or such Designated Senior Indebtedness has been paid in full, after which the Company shall resume making any and all required payments in respect of the Notes, including any missed payments. However, the Company may pay the Notes without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of the Designated Senior Indebtedness of the Company with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding 76 sentence has occurred and is continuing, after which the Company shall resume making any and all required payments in respect of the Notes, including any missed payments. During the continuance of any default (other than a default described in clause (i) or (ii) of the second preceding sentence) with respect to any Designated Senior Indebtedness of the Company pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness of the Company specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (A) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (B) because the default giving rise to such Blockage Notice is no longer continuing or (C) because such Designated Senior Indebtedness of the Company has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this paragraph), unless the holders of such Designated Senior Indebtedness of the Company or the Representative of such holders has accelerated the maturity of such Designated Senior Indebtedness of the Company, the Company may resume payments on the Notes after the end of such Payment Blockage Period, including any missed payments. The Notes shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness of the Company during such period. No default which exists or was continuing on the date of commencement of any Blockage Period with respect to the Designated Senior Indebtedness of the Company shall be, or be made, the basis for the commencement of a second Blockage Period by the Representative of such Designated Senior Indebtedness of the Company whether or not within a period of 360 consecutive days unless such default shall have been cured or waived in writing for a period of not less than 90 consecutive days. (It being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to a default pursuant to any provisions under which a default previously existed or was continuing shall constitute a new default for this purpose). (b) If, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 10.02(a), such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amount of such Senior Indebtedness of the Company held by such holders) or their respective Representatives, as their respective interests may appear. The Trustee shall be entitled to rely on information regarding amounts then due and owing on the Senior Indebtedness of the Company, if any, received from the holders of Senior Indebtedness of the Company (or their Representatives) or, if such information is not received from such holders or their Representatives, from the Company and only amounts included in the information provided to the Trustee shall be paid to the holders of Senior Indebtedness of the Company. 77 The provisions of this Section shall not apply to any payment with respect to which Section 10.03 would be applicable. Nothing contained in this Article Ten shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided that all Senior Indebtedness of the Company thereafter due or declared to be due shall first be paid in full in cash before the Holders are entitled to receive any payment of any kind or character with respect to Obligations on the Notes. SECTION 10.03. Payment Over of Proceeds upon Dissolution, Etc. ---------------------------------------------- (a) Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any total or partial liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Indebtedness of the Company shall first be paid in full in cash, or such payment duly provided for to the satisfaction of the holders of Senior Indebtedness of the Company, before any payment or distribution of any kind or character is made on account of any Obligations on the Notes, or for the acquisition of any of the Notes for cash or property or otherwise. Upon any total or partial liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Notes or the Trustee under this Indenture would be entitled, except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness of the Company held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness of the Company may have been issued, as their respective interests may appear, for application to the payment of Senior Indebtedness of the Company remaining unpaid until all such Senior Indebtedness of the Company has been paid in full in cash after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Senior Indebtedness of the Company. (b) To the extent any payment of Senior Indebtedness of the Company (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Indebtedness of the Company or part thereof 78 originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. (c) If, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by any Holder or the Trustee when such payment or distribution is prohibited by this Section 10.03, such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amount of Senior Indebtedness of the Company held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness of the Company may have been issued, as their respective interests may appear, for application to the payment of Senior Indebtedness of the Company remaining unpaid until all such Senior Indebtedness of the Company has been paid in full in cash, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness of the Company. (d) The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Article Five hereof and as long as permitted under the terms of the Senior Indebtedness of the Company shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume the Company's obligations hereunder in accordance with Article Five hereof. SECTION 10.04. Payments May Be Paid Prior to Dissolution. ----------------------------------------- Nothing contained in this Article Ten or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Sections 10.02 and 10.03, from making payments at any time for the purpose of making payments of principal of and interest on the Notes, or from depositing with the Trustee any moneys for such payments, or (ii) in the absence of actual knowledge by the Trustee that a given payment would be prohibited by Section 10.02 or 10.03, the application by the Trustee of any moneys deposited with it for the purpose of making such payments of principal of, and interest on, the Notes to the Holders entitled thereto unless at least two Business Days prior to the date upon which such payment would otherwise become due and payable a Trust Officer shall have actually received the written notice provided for in the third sentence of Section 10.02(a) or in Section 10.07 (provided that, notwithstanding the foregoing, such application shall otherwise be subject to the provisions of the first sentence of Section 10.02(a), 10.02(b) and Section 10.03). The Company shall give prompt written notice to the Trustee of any dissolution, winding-up, liquidation or reorganization of the Company. 79 SECTION 10.05. Subrogation. ----------- Subject to the payment in full in cash of all Senior Indebtedness of the Company, the Holders of the Notes shall be subrogated to the rights of the holders of Senior Indebtedness of the Company to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness of the Company until the Notes shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of the Senior Indebtedness of the Company by or on behalf of the Company or by or on behalf of the Holders by virtue of this Article Ten which otherwise would have been made to the Holders shall, as between the Company and the Holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Indebtedness of the Company, it being understood that the provisions of this Article Ten are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes, on the one hand, and the holders of the Senior Indebtedness of the Company, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the application of the provisions of this Article Ten, shall have been applied, pursuant to the provisions of this Article Ten, to the payment of amounts payable under Senior Indebtedness of the Company, then the Holders shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Senior Indebtedness in full in cash. SECTION 10.06. Obligations of the Company Unconditional. ---------------------------------------- Nothing contained in this Article Ten or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and any interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Indebtedness of the Company, nor shall anything herein or therein prevent the Holder of any Note or the Trustee on its behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, in respect of cash, property or securities of the Company received upon the exercise of any such remedy. SECTION 10.07. Notice to Trustee. ----------------- The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Notes pursuant to the provisions of this Article Ten. Regardless of anything to the contrary contained in this Article Ten or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Senior Indebtedness of the Company or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing from the Company, or from a holder of Senior Indebtedness of the Company or a 80 Representative therefor and, prior to the receipt of any such written notice, the Trustee shall be entitled to assume (in the absence of actual knowledge to the contrary) that no such facts exist. If the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of the Company to participate in any payment or distribution pursuant to this Article Ten, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amounts of Senior Indebtedness of the Company held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Ten, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 10.08. Reliance on Judicial Order or Certificate of -------------------------------------------- Liquidating Agent. ----------------- Upon any payment or distribution of assets of the Company referred to in this Article Ten, the Trustee, subject to the provisions of Article Seven hereof, and the Holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any insolvency, bankruptcy, receivership, dissolution, winding-up, liquidation, reorganization or similar case or proceeding is pending so long as such order gives effect to the provisions of this Article 10, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, receiver, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or the Holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness of the Company and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Ten. SECTION 10.09. Trustee's Relation to Senior Indebtedness. ----------------------------------------- The Trustee and any agent of the Company or the Trustee shall be entitled to all the rights set forth in this Article Ten with respect to any Senior Indebtedness of the Company which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Indebtedness of the Company and nothing in this Indenture shall deprive the Trustee or any such agent of any of its rights as such holder. With respect to the holders of Senior Indebtedness of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Ten, and no implied covenants or obligations with respect to the holders of Senior Indebtedness of the Company shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of the Company. 81 Whenever a distribution is to be made or a notice given to holders or owners of Senior Indebtedness of the Company, the distribution may be made and the notice may be given to their Representative, if any. SECTION 10.10. Subordination Rights Not Impaired by Acts or Omissions ------------------------------------------------------ of the Company or Holders of Senior Indebtedness. ------------------------------------------------ No right of any present or future holders of any Senior Indebtedness of the Company to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness of the Company may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders of the Notes and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders of the Notes to the holders of the Senior Indebtedness of the Company, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness of the Company, or otherwise amend or supplement in any manner Senior Indebtedness of the Company, or any instrument evidencing the same or any agreement under which Senior Indebtedness of the Company is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness of the Company; (iii) release any Person liable in any manner for the payment or collection of Senior Indebtedness of the Company; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 10.11. Noteholders Authorize Trustee To Effectuate ------------------------------------------- Subordination of Notes. ---------------------- Each Holder of Notes by its acceptance of them authorizes and expressly directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate, as between the holders of Senior Indebtedness of the Company and the Holders of Notes, the subordination provided in this Article Ten, and appoints the Trustee its attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of the Company, the filing of a claim for the unpaid balance of its Notes and accrued interest in the form required in those proceedings. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness of the Company or their Representative are 82 or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Notes. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness of the Company or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Indebtedness of the Company or their Representative to vote in respect of the claim of any Holder in any such proceeding. SECTION 10.12. This Article Ten Not To Prevent Events of Default. ------------------------------------------------- The failure to make a payment on account of principal of or interest on the Notes by reason of any provision of this Article Ten will not be construed as preventing the occurrence of an Event of Default. Nothing contained in this Article Ten shall limit the right of the Trustee or the Holders to take any action or accelerate the maturity of the Notes pursuant to Article Six or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article Ten of the holders from time to time, of Senior Indebtedness of the Company. SECTION 10.13. Trustee's Compensation Not Prejudiced. ------------------------------------- Nothing in this Article Ten will apply to amounts due to the Trustee pursuant to other sections in this Indenture. SECTION 10.14. Acceleration of Payment of Notes. -------------------------------- If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of Designated Senior Indebtedness of the Company or the Representative of such holders of the acceleration (in the case of the Trustee, only to the extent of its actual knowledge of such holders or the Representative of such holders). ARTICLE ELEVEN GUARANTEES SECTION 11.01. Unconditional Guarantee. ----------------------- Each of the Subsidiary Guarantors hereby unconditionally jointly and severally guarantees (such guarantee to be referred to herein as the "Subsidiary Guarantee") to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the 83 principal of and interest on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest, to the extent lawful, of the Notes and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise. Each Subsidiary Guarantor further agrees that, as between such Subsidiary Guarantor on one hand, and the Holders and the Trustee on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Six for the purposes of the Subsidiary Guaranty, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article Six, such obligations (whether or not due and payable) shall forthwith become due and payable by such Subsidiary Guarantor for the purposes of the Subsidiary Guaranty. Each of the Subsidiary Guarantors hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each of the Subsidiary Guarantors hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that the Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and in the Subsidiary Guarantee. If any Noteholder or the Trustee is required by any court or otherwise to return to the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Subsidiary Guarantor, any amount paid by the Company or such Subsidiary Guarantor to the Trustee or such Noteholder, the Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each of the Subsidiary Guarantors hereby agrees that, in the event of default in the payment of principal (or premium, if any) or interest on such Notes, whether at their Stated Maturity, by acceleration, called for redemption, purchase or otherwise, legal proceedings may be instituted by the Trustee on behalf of, or by, the Holder of such Notes, subject to the terms and conditions set forth in this Indenture, directly against each of the Subsidiary Guarantors to enforce the Subsidiary Guarantee without first proceeding against the Company. Each Subsidiary Guarantor agrees that if, after the occurrence and during the continuance of an Event of Default, the Trustee or any Holders are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Notes, to collect interest on the Notes, or to enforce any other right or remedy with respect to the Notes, the Subsidiary Guarantors agree to pay to the Trustee for the account of 84 the Holders, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Trustee or any of the Holders. SECTION 11.02. Subordination of Subsidiary Guarantee. ------------------------------------- The obligations of each Subsidiary Guarantor to the Holders of the Notes and to the Trustee pursuant to the Subsidiary Guarantee and this Indenture are expressly subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of such Subsidiary Guarantor, to the extent and in the manner provided in Article Twelve. SECTION 11.03. Severability. ------------ In case any provision of the Subsidiary Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.04. Release of Subsidiary Guarantor from the Subsidiary --------------------------------------------------- Guarantee. --------- Upon the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Subsidiary Guarantor (or all or substantially all of its assets) to an entity which is not the Company or a Subsidiary or Affiliate of the Company and which sale or disposition is otherwise in compliance with the terms of this Indenture or pursuant to a foreclosure on the capital stock of such Subsidiary Guarantor in accordance with the Revolving Credit Facility, such Subsidiary Guarantor shall be deemed released from all obligations under this Article Eleven without any further action required on the part of the Trustee or any Holder. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 11.04. SECTION 11.05. Limitation on Amount Guaranteed; Contribution by ------------------------------------------------ Subsidiary Guarantors. --------------------- (a) Anything contained in this Indenture or the Subsidiary Guaranty to the contrary notwithstanding, if any Fraudulent Transfer Law (as hereinafter defined) is determined by a court of competent jurisdiction to be applicable to the obligations of any Subsidiary Guarantor under the Subsidiary Guarantee, such obligations of such Subsidiary Guarantor under the Subsidiary Guarantee shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations under the Subsidiary Guarantee subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of such Subsidiary Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically 85 excluding, however, any liabilities of such Subsidiary Guarantor (x) in respect of intercompany Indebtedness to Company or other Affiliates of Company to the extent that such Indebtedness would be discharged in an amount equal to the amount paid by such Subsidiary Guarantor under the Subsidiary Guaranty and (y) under any Guarantee of Subordinated Indebtedness which Guarantee contains a limitation as to maximum amount similar to that set forth in this subsection 11.05(a), pursuant to which the liability of such Subsidiary Guarantor under the Subsidiary Guarantee is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, reimbursement, indemnification or contribution of such Subsidiary Guarantor pursuant to applicable law or pursuant to the terms of any agreement (including without limitation any such right of contribution under subsection 11.05(b). (b) The Subsidiary Guarantors together desire to allocate among themselves in a fair and equitable manner, their obligations arising under the Subsidiary Guarantee. Accordingly, if any payment or distribution is made on any date by any Subsidiary Guarantor under the Subsidiary Guarantee (a "Funding Subsidiary Guarantor") that exceeds its Fair Share (as defined below) as of such date, that Funding Subsidiary Guarantor shall be entitled to a contribution from each of the other Subsidiary Guarantors in the amount of such other Subsidiary Guarantor's Fair Share Shortfall (as defined below) as of such date, with the result that all such contributions will cause each Subsidiary Guarantor's Aggregate Payments (as defined below) to equal its Fair Share as of such date. "Fair Share" means, with respect to a Subsidiary Guarantor as of any date of determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum Amount (as defined below) with respect to such Subsidiary Guarantor to (y) the aggregate of the Adjusted Maximum Amounts with respect to all Subsidiary Guarantors, multiplied by (ii) the aggregate amount paid or distributed on or ---------- -- before such date by all Funding Subsidiary Guarantors under the Subsidiary Guarantee in respect of the obligations guarantied. "Fair Share Shortfall" means, with respect to a Subsidiary Guarantor as of any date of determination, the excess, if any, of the Fair Share of such Subsidiary Guarantor over the Aggregate Payments of such Subsidiary Guarantor. "Adjusted Maximum Amount" means, with respect to a Subsidiary Guarantor as of any date of determination, the maximum aggregate amount of the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee, determined as of such date in accordance with subsection 11.05(a); provided that, solely for purposes of calculating the -------- Adjusted Maximum Amount with respect to any Subsidiary Guarantor for purposes of this subsection 11.05(b), any assets or liabilities of such Subsidiary Guarantor arising by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered as assets or liabilities of such Subsidiary Guarantor. "Aggregate Payments" means, with respect to a Subsidiary Guarantor as of any date of determination, an amount equal to (i) the aggregate amount of all payments and distributions made on or before such date by such Subsidiary Guarantor in respect of the Subsidiary Guarantee (including, without limitation, in respect of this subsection 11.05(b) minus (ii) the aggregate amount of all payments ----- received on or before such date by such Subsidiary Guarantor from the other Subsidiary Guarantors as contributions under this subsection 11.05(b)). The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the applicable Funding Subsidiary Guarantor. The 86 allocation among Subsidiary Guarantors of their obligations as set forth in this subsection 11.05(b) shall not be construed in any way to limit the liability of any Subsidiary Guarantor under this Indenture or under the Subsidiary Guaranty. SECTION 11.06. Waiver of Subrogation. --------------------- Until payment in full is made of the Notes and all other obligations of the Company to the Holders or the Trustee hereunder and under the Notes, each Subsidiary Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Subsidiary Guarantor's obligations under the Subsidiary Guarantee and this Indenture, including without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Notes against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Subsidiary Guarantor in violation of the preceding sentence and the Notes shall not have been paid in full, such amount shall have been deemed to have been paid to such Subsidiary Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Notes, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Notes, whether matured or unmatured, in accordance with the terms of this Indenture. Each Subsidiary Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.06 is knowingly made in contemplation of such benefits. SECTION 11.07. Execution of Subsidiary Guarantee. --------------------------------- To evidence its guarantee to the Noteholders set forth in this Article Eleven, each Subsidiary Guarantor hereby agrees to execute the Subsidiary Guarantee in substantially the form included in Exhibits A and Exhibit B, which shall be endorsed on such Note ordered to be authenticated and delivered by the Trustee. Each Subsidiary Guarantor hereby agrees that the Subsidiary Guarantee set forth in this Article Eleven shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of the Subsidiary Guarantee. The Subsidiary Guarantee shall be signed on behalf of each Subsidiary Guarantor by two Officers, or an Officer and an Assistant Secretary or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Subsidiary Guarantee prior to the authentication of the Note on which it is endorsed, and the delivery of such Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee on behalf of such Subsidiary Guarantor. Such signatures upon the Subsidiary Guarantee may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Subsidiary Guarantee, and in case any such officer who shall have signed the Subsidiary Guarantee shall cease to be such officer before the Note on which the Subsidiary Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Note 87 nevertheless may be authenticated and delivered or disposed of as though the person who signed the Subsidiary Guarantee had not ceased to be such Officer of such Subsidiary Guarantor. SECTION 11.08. Waiver of Stay, Extension or Usury Laws. --------------------------------------- Each Subsidiary Guarantor jointly and severally covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive such Subsidiary Guarantor from performing the Subsidiary Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) each Subsidiary Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 11.09. Effectiveness of Subsidiary Guarantee. ------------------------------------- The Subsidiary Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Notes, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Notes, whether as a "voidable preference," "fraudulent transfer," or otherwise, all as though such a payment or performance had not been made. If any payments, or any part thereof, is rescinded, reduced, restored or returned, the Notes shall, to the fullest extent permitted by law, be reinstituted and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. ARTICLE TWELVE SUBORDINATION OF GUARANTEE OBLIGATIONS SECTION 12.01. Subsidiary Guarantee Obligations Subordinated to Senior ------------------------------------------------------- Indebtedness of Subsidiary Guarantors. ------------------------------------- Each Subsidiary Guarantor covenants and agrees, and each Holder of the Notes, by its acceptance thereof, likewise covenants and agrees, that any payment of obligations by each Subsidiary Guarantor in respect of the Subsidiary Guarantee (its "Subsidiary Guarantee Obligations") shall be made subject to the provisions of this Article Twelve, and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, 88 accepts and agrees that the payment of all such Subsidiary Guarantor's Subsidiary Guarantee Obligations shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash of all Obligations in respect of such Subsidiary Guarantor's Senior Indebtedness, including principal, premium (if any) or interest (including post-petition interest) thereon, that the subordination is for the benefit of, and shall be enforceable directly by, the holders of such Subsidiary Guarantor's Senior Indebtedness, and that each holder of any Subsidiary Guarantor's Senior Indebtedness whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired such Subsidiary Guarantor's Senior Indebtedness in reliance upon the covenants and provisions contained in this Indenture and the Notes. Only Indebtedness of a Subsidiary Guarantor that is Senior Indebtedness of such Subsidiary Guarantor will rank senior to the Subsidiary Guarantee of such Subsidiary Guarantor in accordance with the provisions of the Indenture. A Subsidiary Guarantee will in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Subsidiary Guarantor to which it relates. Unsecured Indebtedness is not deemed to be subordinated or junior to secured Indebtedness merely because it is unsecured. SECTION 12.02. No Payment on Notes in Certain Circumstances. -------------------------------------------- (a) No Subsidiary Guarantor may, and no other Person on behalf of such Subsidiary Guarantor may, make any payment with respect to the Subsidiary Guarantee or make any deposit pursuant to Article Eight above (collectively, "pay the Subsidiary Guarantee") if (i) any Designated Senior Indebtedness of such Subsidiary Guarantor or the Company is not paid when due beyond any applicable grace period whether at maturity, upon redemption, by declaration or otherwise or (ii) any other default on Designated Senior Indebtedness of such Subsidiary Guarantor or the Company occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, the default has been cured or waived in writing and any such acceleration has been rescinded or such Designated Senior Indebtedness has been paid in full, after which such Subsidiary Guarantor shall resume making any and all required payments in respect of the Subsidiary Guaranty, including any missed payments. However, a Subsidiary Guarantor may pay the Subsidiary Guarantee without regard to the foregoing if such Subsidiary Guarantor and the Trustee receive written notice approving such payment from the Representative of the Designated Senior Indebtedness guaranteed by such Subsidiary Guarantor with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing, after which such Subsidiary Guarantor shall resume making any and all required payments in respect of the Subsidiary Guaranty, including any missed payments. During the continuance of any default (other than a default described in clause (i) or (ii) of the second preceding sentence) with respect to any Designated Senior Indebtedness of a Subsidiary Guarantor or the Company pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, such Subsidiary Guarantor may not pay the Subsidiary Guarantee for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to such Subsidiary Guarantor) of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness of such Subsidiary Guarantor or the Company specifying an election to 89 effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (A) by written notice to the Trustee and such Subsidiary Guarantor from the Person or Persons who gave such Blockage Notice, (B) because the default giving rise to such Blockage Notice is no longer continuing or (C) because such Designated Senior Indebtedness of such Subsidiary Guarantor and the related Designated Senior Indebtedness of the Company has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this paragraph), unless the holders of such Designated Senior Indebtedness of such Subsidiary Guarantor or the Company or the Representative of such holders has accelerated the maturity of such Designated Senior Indebtedness of such Subsidiary Guarantor or the Company, such Subsidiary Guarantor may resume payments on the Subsidiary Guarantee after the end of such Payment Blockage Period including any missed payments. The Subsidiary Guarantee shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness guaranteed by such Subsidiary Guarantor during such period. No default which exists or was continuing on the date of commencement of any Blockage Period with respect to the Designated Senior Indebtedness of a Subsidiary Guarantor or the Company under this Section 12.02 shall be, or shall be made, the basis for the commencement of a second Blockage Period by the Representative of such Designated Senior Indebtedness of such Subsidiary Guarantor whether or not within a period of 360 consecutive days unless such default shall have been cured or waived in writing for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to a default pursuant to any provisions under which a default previously existed or was continuing shall constitute a new event of default for this purpose). (b) If, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 12.02(a), such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Subsidiary Guarantor's Senior Indebtedness (pro rata to such holders on the basis of the respective amount of such Subsidiary Guarantor's Senior Indebtedness held by such holders) or their respective Representatives, as their respective interests may appear. The Trustee shall be entitled to rely on information regarding amounts then due and owing on such Subsidiary Guarantor's Senior Indebtedness, if any, received from the holders of such Subsidiary Guarantor's Senior Indebtedness (or their Representatives) or, if such information is not received from such holders or their Representatives, from such Subsidiary Guarantor and only amounts included in the information provided to the Trustee shall be paid to the holders of such Subsidiary Guarantor's Senior Indebtedness. The provisions of this Section shall not apply to any payment with respect to which Section 12.03 would be applicable. Nothing contained in this Article Twelve shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided that all Senior Indebtedness 90 of the Company thereafter due or declared to be due shall first be paid in full in cash or before the Holders are entitled to receive any payment of any kind or character with respect to Obligations on the Notes. SECTION 12.03. Payment Over of Proceeds upon Dissolution, Etc. ---------------------------------------------- (a) Upon any payment or distribution of assets of any Subsidiary Guarantor of any kind or character, whether in cash, property or securities, to creditors upon any total or partial liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to such Subsidiary Guarantor or its property, whether voluntary or involuntary, all Obligations due or to become due upon all of such Subsidiary Guarantor's Senior Indebtedness shall first be paid in full in cash, or such payment duly provided for to the satisfaction of the holders of such Subsidiary Guarantor's Senior Indebtedness, before any payment or distribution of any kind or character is made on account of any Obligations with respect to the Subsidiary Guarantee of such Subsidiary Guarantor, or for the acquisition of such Subsidiary Guarantee for cash or property or otherwise. Upon any such total or partial liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding, any payment or distribution of assets of such Subsidiary Guarantor of any kind or character, whether in cash, property or securities, to which the Holders of the Notes or the Trustee under this Indenture would be entitled, except for the provisions hereof, shall be paid by such Subsidiary Guarantor or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them, directly to the holders of such Subsidiary Guarantor's Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of such Subsidiary Guarantor's Senior Indebtedness held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Subsidiary Guarantor's Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of such Subsidiary Guarantor's Senior Indebtedness remaining unpaid until all such Subsidiary Guarantor's Senior Indebtedness has been paid in full in cash or after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Subsidiary Guarantor's Senior Indebtedness. (b) To the extent any payment of any Subsidiary Guarantor's Senior Indebtedness (whether by or on behalf of such Subsidiary Guarantor, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, such Subsidiary Guarantor's Senior Indebtedness or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. 91 (c) If, notwithstanding the foregoing, any payment or distribution of assets of any Subsidiary Guarantor of any kind or character, whether in cash, property or securities, shall be received by any Holder or the Trustee when such payment or distribution is prohibited by this Section 12.03, such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Subsidiary Guarantor's Senior Indebtedness (pro rata to such holders on the basis of the respective amount of such Subsidiary Guarantor's Senior Indebtedness held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Subsidiary Guarantor's Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of such Subsidiary Guarantor's Senior Indebtedness remaining unpaid until all such Subsidiary Guarantor's Senior Indebtedness has been paid in full in cash, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Subsidiary Guarantor's Senior Indebtedness. (d) The consolidation of any Subsidiary Guarantor with, or the merger of any Subsidiary Guarantor with or into, another corporation or the liquidation or dissolution of any Subsidiary Guarantor following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Article Five hereof and as long as permitted under the terms of such Subsidiary Guarantor's Senior Indebtedness shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume such Subsidiary Guarantor's obligations hereunder in accordance with Article Five hereof. SECTION 12.04. Payments May Be Paid Prior to Dissolution. ----------------------------------------- Nothing contained in this Article Twelve or elsewhere in this Indenture shall prevent (i) any Subsidiary Guarantor, except under the conditions described in Sections 12.02 and 12.03, from making payments at any time for the purpose of making payments in respect of this Subsidiary Guarantee, or from depositing with the Trustee any moneys for such payments, or (ii) in the absence of actual knowledge by the Trustee that a given payment would be prohibited by Section 12.02 or 12.03, the application by the Trustee of any moneys deposited with it for the purpose of making such payments to the Holders entitled thereto unless at least two Business Days prior to the date upon which such payment would otherwise become due and payable a Trust Officer shall have actually received the written notice provided for in the third sentence of Section 12.02(a) or in Section 12.07 (provided that, notwithstanding the foregoing, such application shall otherwise be subject to the provisions of the first sentence of Section 12.02(a), 12.02(b) and Section 12.03). Each Subsidiary Guarantor shall give prompt written notice to the Trustee of any dissolution, winding-up, liquidation or reorganization of such Subsidiary Guarantor. SECTION 12.05. Subrogation. ----------- Subject to the payment in full in cash of all Subsidiary Guarantor Senior Indebtedness, the Holders of the Obligations of any Subsidiary Guarantor shall be subrogated 92 to the rights of the holders of such Subsidiary Guarantor's Senior Indebtedness to receive payments or distributions of cash, property or securities of such Subsidiary Guarantor applicable to such Subsidiary Guarantor's Senior Indebtedness until the Obligations of such Subsidiary Guarantor under the Subsidiary Guarantee shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of such Subsidiary Guarantor's Senior Indebtedness by or on behalf of such Subsidiary Guarantor or by or on behalf of the Holders by virtue of this Article Twelve which otherwise would have been made to the Holders shall, as between such Subsidiary Guarantor and the Holders of such Subsidiary Guarantor's Obligations, be deemed to be a payment by such Subsidiary Guarantor to or on account of such Subsidiary Guarantor's Senior Indebtedness, it being understood that the provisions of this Article Twelve are and are intended solely for the purpose of defining the relative rights of the Holders of such Subsidiary Guarantor's Obligations, on the one hand, and the holders of such Subsidiary Guarantor's Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the application of the provisions of this Article Twelve shall have been applied, pursuant to the provisions of this Article Twelve, to the payment of amounts payable under Senior Indebtedness of any Subsidiary Guarantor, then the Holders shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Senior Indebtedness in full in cash. SECTION 12.06. Obligations of Subsidiary Guarantor Unconditional. ------------------------------------------------- Nothing contained in this Article Twelve or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Subsidiary Guarantors, their respective creditors other than the holders of such Subsidiary Guarantor's Senior Indebtedness, and the Holders, the obligation of such Subsidiary Guarantor, which is absolute and unconditional, to pay to the Holders the Subsidiary Guarantee Obligations as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of such Subsidiary Guarantor other than the holders of such Subsidiary Guarantor's Senior Indebtedness, nor shall anything herein or therein prevent the Holder of any Note or the Trustee on its behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, in respect of cash, property or securities of such Subsidiary Guarantor received upon the exercise of any such remedy. SECTION 12.07. Notice to Trustee. ----------------- Each Subsidiary Guarantor shall give prompt written notice to the Trustee of any fact known to such Subsidiary Guarantor which would prohibit the making of any payment to or by the Trustee in respect of the Subsidiary Guarantee or the Notes pursuant to the provisions of this Article Twelve. Regardless of anything to the contrary contained in this Article Twelve or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Subsidiary Guarantor's Senior Indebtedness 93 or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing from such Subsidiary Guarantor or from a holder of such Subsidiary Guarantor's Senior Indebtedness or a Representative therefor, and, prior to the receipt of any such written notice, the Trustee shall be entitled to assume (in the absence of actual knowledge to the contrary) that no such facts exist. If the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of such Subsidiary Guarantor's Senior Indebtedness to participate in any payment or distribution pursuant to this Article Twelve, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amounts of such Subsidiary Guarantor's Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Twelve, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 12.08. Reliance on Judicial Order or Certificate of -------------------------------------------- Liquidating Agent. ----------------- Upon any payment or distribution of assets of any Subsidiary Guarantor referred to in this Article Twelve, the Trustee, subject to the provisions of Article Seven hereof, and the Holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any insolvency, bankruptcy, receivership, dissolution, winding-up, liquidation, reorganization or similar case or proceeding is pending so long as such order gives effect to the provisions of this Article Twelve, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, receiver, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or the Holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of each Subsidiary Guarantor's Senior Indebtedness and other Indebtedness of any Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Twelve. SECTION 12.09. Trustee's Relation to Subsidiary Guarantor's Senior --------------------------------------------------- Indebtedness. ------------ The Trustee, any agent of the Trustee and any agent of any Subsidiary Guarantor shall be entitled to all the rights set forth in this Article Twelve with respect to the respective Subsidiary Guarantor's Senior Indebtedness which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of the respective Subsidiary Guarantor's Senior Indebtedness and nothing in this Indenture shall deprive the Trustee or any such agent of any of its rights as such holder. With respect to the holders of the respective Subsidiary Guarantor's Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and 94 obligations as are specifically set forth in this Article Twelve, and no implied covenants or obligations with respect to the holders of the respective Subsidiary Guarantor's Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of any Subsidiary Guarantor's Senior Indebtedness. Whenever a distribution is to be made or a notice given to holders or owners of any Subsidiary Guarantor's Senior Indebtedness, the distribution may be made and the notice may be given to their Representative, if any. SECTION 12.10. Subordination Rights Not Impaired by Acts or Omissions ------------------------------------------------------ of Subsidiary Guarantors or Holders of Subsidiary ------------------------------------------------- Guarantors' Senior Indebtedness. ------------------------------- No right of any present or future holders of any Subsidiary Guarantor's Senior Indebtedness to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of such Subsidiary Guarantor or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by such Subsidiary Guarantor with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of any Subsidiary Guarantor's Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders of the Notes and without impairing or releasing the subordination provided in this Article Twelve or the obligations hereunder of the Holders of the Notes to the holders of such Subsidiary Guarantor's Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Subsidiary Guarantor's Senior Indebtedness, or otherwise amend or supplement in any manner such Subsidiary Guarantor's Senior Indebtedness, or any instrument evidencing the same or any agreement under which such Subsidiary Guarantor's Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Subsidiary Guarantor's Senior Indebtedness; (iii) release any Person liable in any manner for the payment or collection of such Subsidiary Guarantor's Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against such Subsidiary Guarantor and any other Person. SECTION 12.11. Noteholders Authorize Trustee To Effectuate ------------------------------------------- Subordination of Notes. ---------------------- Each Holder of Notes by its acceptance of them authorizes and expressly directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate, as between the holders of each Subsidiary Guarantor's Senior Indebtedness and the Holders of Notes, the subordination provided in this Article Twelve, and appoints the Trustee its attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, 95 liquidation or reorganization of such Subsidiary Guarantor (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of such Subsidiary Guarantor, the filing of a claim for the unpaid balance of its Notes and accrued interest in the form required in those proceedings. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of each Subsidiary Guarantor's Senior Indebtedness or their Representative are or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Notes. Nothing herein contained shall be deemed to authorize the Trustee or the holders of any Subsidiary Guarantor's Senior Indebtedness or their respective Representatives to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee or the holders of any Subsidiary Guarantor's Senior Indebtedness or their Representatives to vote in respect of the claim of any Holder in any such proceeding. SECTION 12.12. This Article Twelve Not To Prevent Events of Default. ---------------------------------------------------- The failure to make a payment on account of Obligations of any Subsidiary Guarantor by reason of any provision of this Article Twelve will not be construed as preventing the occurrence of an Event of Default. Nothing contained in this Article Twelve shall limit the right of the Trustee or the Holders to take any action or accelerate the maturity of the Notes pursuant to Article Six or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article Twelve of the holders from time to time, of Senior Indebtedness of any Subsidiary Guarantor. ARTICLE THIRTEEN MISCELLANEOUS SECTION 13.01. TIA Controls. ------------ If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 13.02. Notices. ------- Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by commercial courier service, 96 by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company or any Subsidiary Guarantor: HCC Industries Inc. 4232 Temple City Boulevard Rosemead, CA 91770 Facsimile No.: (818) 443-9074 Telephone: (818) 443-8933 Attn: Andy Goldfarb with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, NY 10022 Facsimile No.: (212) 735-2000 Telephone: (212) 735-3000 Attn: Lou R. Kling, Esq. Howard L. Ellin if to the Trustee: IBJ Schroder Bank & Trust Company One State Street New York, NY 10004 Facsimile No.: (212) 858-2952 Telephone No.: (212) 858-2529 Attn: Corporate Finance Trust Services Each of the Company, the Subsidiary Guarantors and the Trustee by written notice to each other such Person may designate additional or different addresses for notices to such Person. Any notice or communication to the Company, the Subsidiary Guarantors or the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when receipt is confirmed if delivered by commercial courier service; when receipt is acknowledged, if faxed; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. 97 Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 13.03. Communications by Holders with Other Holders. -------------------------------------------- Holders may communicate pursuant to the TIA (S) 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Subsidiary Guarantors, the Trustee, the Registrar and any other Person shall have the protection of the TIA (S) 312(c). SECTION 13.04. Certificate and Opinion as to Conditions Precedent. -------------------------------------------------- Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate, in form and substance satisfactory to the Trustee, stating that, in the opinion of the signers, all conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with. SECTION 13.05. Statements Required in Certificate or Opinion. --------------------------------------------- Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.06, shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition and the definitions relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is reasonably necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and 98 (4) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with. SECTION 13.06. Rules by Trustee, Paying Agent, Registrar. ----------------------------------------- The Trustee may make reasonable rules in accordance with the Trustee's customary practices for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 13.07. Legal Holidays. -------------- A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 13.08. Governing Law. ------------- THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE. SECTION 13.09. No Adverse Interpretation of Other Agreements. --------------------------------------------- This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 13.10. No Recourse Against Others. -------------------------- No past, present or future director, officer, employee, stockholder or incorporator, as such, of the Company or of the Trustee shall have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Notes. 99 SECTION 13.11. Successors. ---------- All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.12. Duplicate Originals. ------------------- All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. SECTION 13.13. Severability. ------------ In case any one or more of the provisions in this Indenture or in the Notes shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms of provisions hereof. 100 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. Issuer: HCC INDUSTRIES INC. By:_______________________________ Name: Title: Subsidiary Guarantors: HERMETIC SEAL CORPORATION By:_______________________________ Name: Title: GLASSEAL PRODUCTS, INC. By:_______________________________ Name: Title: 101 SEALTRON INC. By:_______________________________ Name: Title: SEALTRON ACQUISITION CORP. By:_______________________________ Name: Title: HCC INDUSTRIES INTERNATIONAL By:_______________________________ Name: Title: Trustee: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By:_______________________________ Name: Title: 102 EXHIBIT A --------- [Each Global Note and Note in definitive form that constitutes a Restricted Security shall bear the following Private Placement Legend on the face thereof until May 6, 1999, unless otherwise agreed by the Company and the Holder thereof: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURITY AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER- DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE OR REGISTRAR), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURITY AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED A-1 STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT, DATED MAY 6, 1997, EXECUTED AND DELIVERED BY THE COMPANY AND THE GUARANTORS FOR THE BENEFIT OF HOLDERS FROM TIME TO TIME OF SECURITIES. COPIES OF SUCH REGISTRATION RIGHTS AGREEMENT ARE AVAILABLE FOR INSPECTION AT THE CORPORATE TRUST OFFICE OF THE TRUSTEE. Each Global Note shall also bear the following legend on the face thereof: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE (AS DEFINED HEREIN). CUSIP No.: HCC INDUSTRIES INC. 10-3/4% SENIOR SUBORDINATED NOTE DUE 2007 No. $ A-2 HCC INDUSTRIES INC., a Delaware corporation (the "Company," which term includes any successor entity), for value received promises to pay to _____________________ or registered assigns, the principal sum of _______ Dollars, on May __, 2007. Interest Payment Dates: [May] 15 and [November] 15 Record Dates: May 1 and November 1 Reference is made to the further provisions of this Note contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. HCC INDUSTRIES INC. By:_____________________________ Name: Title: By:_____________________________ Name: Dated: May 6, 1997 Title: Certificate of Authentication This is one of the 10-3/4% Senior Subordinated Notes due 2007 referred to in the within-mentioned Indenture. _______________________________, as Trustee Dated: May 6, 1997 By:____________________________________ Authorized Signatory A-3 (REVERSE OF SECURITY) 10-3/4% SENIOR SUBORDINATED NOTE DUE 2007 1. Interest. HCC INDUSTRIES INC., a Delaware corporation (the -------- "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above; provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional interest will accrue on this Security at a rate of 0.50% per annum increasing by 0.50% per annum at the end of each 90-day period thereafter (up to a maximum of 2% per annum), from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from May 6, 1997. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing November 15, 1997. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Notes plus 1% per annum and on overdue installments of interest (without regard to any applicable grace periods) at such higher rate to the extent lawful. 2. Method of Payment. The Company shall pay interest on the Notes ----------------- (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, IBJ Schroder Bank & Trust -------------------------- Company, a New York banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co- Registrar without notice to the Holders. 4. Indenture and Subsidiary Guarantee. The Company issued the Notes ---------------------------------- under an Indenture, dated as of May 6, 1997 (the "Indenture"), among the Company, Hermetic Seal Corporation, Glasseal Products, Inc., Sealtron Inc., Sealtron Acquisition Corp., HCC Industries International, and the Trustee. This Note is one of a duly authorized issue of Initial Notes of the Company designated as its 10-3/4% Senior Subordinated Notes due 2007 (the "Initial Notes"). The Notes are limited in aggregate principal amount to $90,000,000. The Notes include the Initial Notes and the Exchange Notes, as defined below, issued in exchange for the Initial Notes pursuant to the Indenture. The Initial Notes and the A-4 Exchange Notes are treated as a single class of securities under the Indenture. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA Act for a statement of them. The Notes are general unsecured obligations of the Company. Payment on each Note is guaranteed on a senior subordinated basis by the Subsidiary Guarantors pursuant to Article Eleven of the Indenture. 5. Subordination. The Notes are subordinated in right of payment, ------------- in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash of all Senior Indebtedness of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by his acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on his behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee his attorney-in-fact for such purposes. 6. Redemption. ---------- (a) Optional Redemption. Except as set forth in the following ------------------- paragraph, the Notes will not be redeemable at the option of the Company prior to May 15, 2002. Thereafter, the Notes will be redeemable, at the Company's option, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on May 15 of the years set forth below:
Redemption Period Price ------ ---------- 2002............................ 105.375% 2003............................ 103.583% 2004............................ 101.792% 2005 and thereafter............. 100.000%
(b) Optional Redemption Upon Public Equity Offerings. In addition, ------------------------------------------------ at any time and from time to time prior to May 15, 2000, the Company may redeem in the aggregate up to $20 million of the original principal amount of the Notes with the proceeds of one or more Public Equity Offerings following which there is a Public Market, at a redemption price (expressed as a percentage of principal amount) of 110.75% plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, A-5 that at least $70 million aggregate principal amount of the Notes must remain outstanding after each such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. 7. Notice of Redemption. Notice of redemption will be mailed at -------------------- least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations of $1,000 may be redeemed only in whole. Notes in denominations larger than $1,000 may be redeemed in part but only in multiples of $1000. Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued and unpaid interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued and unpaid interest, if any. 8. Offers to Purchase. Sections 4.16 and 4.17 of the Indenture ------------------ provide that, in the event of certain Asset Sales (as defined in the Indenture) and upon the occurrence of a Change of Control (as defined in the Indenture), and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. 9. Registration Rights. Pursuant to the Registration Rights ------------------- Agreement (as defined in the Indenture), the Company will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for the Company's 10-3/4% Senior Subordinated Exchange Notes due 2007 (the "Exchange Notes"), which have been registered under the Securities Act, in like principal amount and having terms identical in all material respects to the Initial Notes. The Holders of the Initial Notes shall be entitled to receive certain additional interest payments if such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 10. Denominations; Transfer; Exchange. The Notes are in registered --------------------------------- form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption (except, in the case of Notes to be redeemed in part, the portion of such Notes not to be redeemed) or any Note for a period of 15 days before the mailing of a notice of redemption. A-6 11. Persons Deemed Owners. The registered Holder of a Note shall be --------------------- treated as the owner of it for all purposes. 12. Unclaimed Money. If money for the payment of principal or --------------- interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 13. Discharge Prior to Redemption or Maturity. If the Company at any ----------------------------------------- time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, but excluding its obligation to pay the principal of and interest on the Notes). 14. Amendment; Supplement; Waiver. Subject to certain exceptions, ----------------------------- the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture or make any other change that does not adversely affect in any material respect the rights of any Holder of a Note. 15. Restrictive Covenants. The Indenture imposes certain limitations --------------------- on the ability of the Company and its Restricted Subsidiaries to, among other things, incur additional Indebtedness, make payments in respect of its Capital Stock or certain Indebtedness, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries, merge or consolidate with any other Person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 16. Successors. When a successor assumes, in accordance with the ---------- Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 17. Defaults and Remedies. If an Event of Default occurs and is --------------------- continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Certain events of bankruptcy and insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the A-7 Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 18. Trustee Dealings with Company. The Trustee under the Indenture, ----------------------------- in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No stockholder, director, officer, -------------------------- employee or incorporator, as such, of the Company or any Subsidiary Guarantor shall have any liability for any obligation of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 20. Authentication. This Note shall not be valid until the Trustee -------------- or Authenticating Agent manually signs the certificate of authentication on this Note. 21. Governing Law. The Laws of the State of New York shall govern ------------- this Note and the Indenture, without regard to principles of conflict of laws. 22. Abbreviations and Defined Terms. Customary abbreviations may be ------------------------------- used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 23. CUSIP Numbers. Pursuant to a recommendation promulgated by the ------------- Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 24. Indenture. Each Holder, by accepting a Note, agrees to be bound --------- by all of the terms and provisions of the Indenture, as the same may be amended from time to time. 25. Holders' Compliance with Registration Rights Agreement. Each ------------------------------------------------------ Holder of a Note, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including, without limitation, the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein. A-8 The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture, which has the text of this Note in larger type. Requests may be made to: HCC INDUSTRIES INC., 4232 Temple City Boulevard, Rosemead, CA 91770, Attn: Christopher Bateman. A-9 [FORM OF NOTATION ON NOTE RELATING TO SUBSIDIARY GUARANTEE] SUBSIDIARY GUARANTEE Hermetic Seal Corporation, Glasseal Products, Inc., Sealtron Inc., Sealtron Acquisition Corp., and HCC Industries International (the "Subsidiary Guarantors"), have each jointly and severally unconditionally guaranteed on a senior subordinated basis (such guarantee by each Subsidiary Guarantor being referred to herein as the "Subsidiary Guarantee") (i) the due and punctual payment of the principal of and interest on the Notes, subject to any applicable grace period, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Notes, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Eleven of the Indenture and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of each Subsidiary Guarantor to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth and are senior subordinated obligations of each Subsidiary Guarantor, to the extent and in the manner provided, in Articles Eleven and Twelve of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Subsidiary Guarantee therein made. No stockholder, officer, director or incorporator, as such, past, present or future, of each Subsidiary Guarantor shall have any liability under the Subsidiary Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. The Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Notes upon which the Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. HERMETIC SEAL CORPORATION By:_____________________________ Name: Title: By:_____________________________ Name: Title: A-10 GLASSEAL PRODUCTS, INC. By:_____________________________ Name: Title: By:_____________________________ Name: Title: SEALTRON INC. By:_____________________________ Name: Title: By:_____________________________ Name: Title: SEALTRON ACQUISITION CORP. By:_____________________________ Name: Title: By:_____________________________ Name: Title: A-11 HCC INDUSTRIES INTERNATIONAL By:__________________________ Name: Title: By:__________________________ Name: Title: A-12 ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint ________________________________________, agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date:___________________ Signed:______________________________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee:____________________________ (Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended). In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by the SEC of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resales of this Note (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) May 6, 1999, the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that this Note is being transferred: A-13 [Check One] --------- (1) __ to the Company or a subsidiary thereof; or (2) __ pursuant to and in compliance with Rule 144A under the Securities Act; or (3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) __ outside the United States to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act; or (5) __ pursuant to the exemption from registration provided by Rule 144 under the Securities Act; or (6) __ pursuant to an effective registration statement under the Securities Act; or (7) __ pursuant to another available exemption from the registration requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided that if box (3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Notes, in its sole discretion, such legal opinions, certifications (including an investment letter in the case of box (3) or (4)) and other information as the Trustee or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. A-14 If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.17 of the Indenture shall have been satisfied. Dated: ___________________ Signed:_____________________________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee:____________________________________________________________ TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: _____________________ _____________________________________________ NOTICE: To be executed by an executive officer A-15 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate box: Section 4.16 [ ] Section 4.17 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the amount you elect to have purchased: $___________________ Dated:__________________ _____________________________________________ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee:____________________________________ (Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended). A-16 EXHIBIT B --------- CUSIP No.: HCC INDUSTRIES INC. 10-3/4% SENIOR SUBORDINATED NOTE DUE 2007 No. $ HCC INDUSTRIES INC., a Delaware corporation (the "Company," which term includes any successor entity), for value received promises to pay to _____________________ or registered assigns, the principal sum of _______ Dollars, on May 15, 2007. Interest Payment Dates: May 15 and November 15 Record Dates: May 1 and November 1 Reference is made to the further provisions of this Note contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. HCC INDUSTRIES INC. By:_____________________________ Name: Title: By:_____________________________ Name: Dated:__________, 1997 Title: Certificate of Authentication This is one of the 10-3/4% Senior Subordinated Notes due 2007 referred to in the within-mentioned Indenture. _______________________________, as Trustee Dated:__________, 1997 By:____________________________________ Authorized Signatory B-1 (REVERSE OF SECURITY) 10-3/4% SENIOR SUBORDINATED NOTE DUE 2007 1. Interest. HCC INDUSTRIES INC., a Delaware corporation (the -------- "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above; provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, interest will accrue on this Security at a rate of 0.50% per annum (up to a maximum of 2% per annum) from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from May 6, 1997. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing November 15, 1997. Interest will be computed on the basis of a 360- day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Notes plus 1% per annum and on overdue installments of interest (without regard to any applicable grace periods) at such higher rate to the extent lawful. 2. Method of Payment. The Company shall pay interest on the Notes ----------------- (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, IBJ Schroder Bank & -------------------------- Trust Company, a New York banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. 4. Indenture and Guarantee. The Company issued the Notes under an ----------------------- Indenture, dated as of May 6, 1997 (the "Indenture"), among the Company, Hermetic Seal Corporation, Glasseal Products, Inc., Sealtron Inc., Sealtron Acquisition Corp., and HCC Industries International and the Trustee. This Note is one of a duly authorized issue of Exchange Notes of the Company designated as its 10-3/4% Senior Subordinated Notes due 2007 (the "Exchange Notes"). The Notes are limited in aggregate principal amount to $90,000,000. The Notes include the Initial Notes (the 10-3/4% Senior Subordinated Notes due 2007) and the Exchange Notes issued in exchange for the Initial Notes pursuant to the Indenture. The Initial Notes and the Exchange Notes are treated as a single class of securities B-2 under the Indenture. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and said Act for a statement of them. The Notes are general unsecured obligations of the Company. Payment on each Note is guaranteed on a senior subordinated basis by the Subsidiary Guarantors pursuant to Article Eleven of the Indenture. 5. Subordination. The Notes are subordinated in right of payment, ------------- in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash of all Senior Indebtedness of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by his acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on his behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee his attorney-in-fact for such purposes. 6. Redemption. ---------- (a) Optional Redemption. Except as set forth in the following ------------------- paragraph, the Notes will not be redeemable at the option of the Company prior to May 15, 2002. Thereafter, the Notes will be redeemable, at the Company's option, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on May 15 of the years set forth below:
Redemption Period Price ------ ---------- 2002............................ 105.375% 2003............................ 103.58% 2004............................ 101.79% 2005 and thereafter............. 100.000%
(b) Optional Redemption Upon Public Equity Offerings. In addition, ------------------------------------------------ at any time and from time to time prior to May 15, 2000, the Company may redeem in the aggregate up to $15 million of the original principal amount of the Notes with the proceeds of one or more Public Equity Offerings following which there is a Public Market, at a redemption price (expressed as a percentage of principal amount) of 110.75% plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, B-3 that at least $70 million aggregate principal amount of the Notes must remain outstanding after each such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. 7. Notice of Redemption. Notice of redemption will be mailed at -------------------- least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in multiples of $1000. Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued and unpaid interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued and unpaid interest, if any. 8. Offers to Purchase. Sections 4.16 and 4.17 of the Indenture ------------------ provide that, after certain Asset Sales (as defined in the Indenture) and upon the occurrence of a Change of Control (as defined in the Indenture), and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. 9. Denominations; Transfer; Exchange. The Notes are in registered --------------------------------- form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption (except, in the case of Notes to be redeemed in part, the portion of such Notes not to be redeemed) or any Note for a period of 15 days before the mailing of a notice of redemption. 10. Persons Deemed Owners. The registered Holder of a Note shall be --------------------- treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or --------------- interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any ----------------------------------------- time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient B-4 to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, but excluding its obligation to pay the principal of and interest on the Notes). 13. Amendment; Supplement; Waiver. Subject to certain exceptions, ----------------------------- the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture or make any other change that does not adversely affect in any material respect the rights of any Holder of a Note. 14. Restrictive Covenants. The Indenture imposes certain limitations --------------------- on the ability of the Company and its Restricted Subsidiaries to, among other things, incur additional Indebtedness, make payments in respect of its Capital Stock or certain Indebtedness, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries, merge or consolidate with any other Person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Successors. When a successor assumes, in accordance with the ---------- Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is --------------------- continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Certain events of bankruptcy and insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 17. Trustee Dealings with Company. The Trustee under the Indenture, ----------------------------- in its individual or any other capacity, may become the owner or pledgee of Notes and may B-5 otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, -------------------------- employee or incorporator, as such, of the Company or any Subsidiary Guarantor shall have any liability for any obligation of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 19. Authentication. This Note shall not be valid until the Trustee -------------- or Authenticating Agent manually signs the certificate of authentication on this Note. 20. Governing Law. The Laws of the State of New York shall govern ------------- this Note and the Indenture, without regard to principles of conflict of laws. 21. Abbreviations and Defined Terms. Customary abbreviations may be ------------------------------- used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the ------------- Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 23. Indenture. Each Holder, by accepting a Note, agrees to be bound --------- by all of the terms and provisions of the Indenture, as the same may be amended from time to time. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture, which has the text of this Note in larger type. Requests may be made to: HCC INDUSTRIES INC., 4232 Temple City Boulevard, Rosemead, CA 91770, Attn: Christopher Bateman. B-6 [FORM OF NOTATION ON NOTE RELATING TO SUBSIDIARY GUARANTEE] SUBSIDIARY GUARANTEE Hermetic Seal Corporation, Glasseal Products, Inc., Sealtron Inc., Sealtron Acquisition Corp., and HCC Industries International (the "Subsidiary Guarantors"), have each unconditionally guaranteed on a senior subordinated basis (such guarantee by the Subsidiary Guarantors being referred to herein as the "Subsidiary Guarantee") (i) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Notes, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Eleven of the Indenture and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of each Subsidiary Guarantor to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth and are senior subordinated obligations of each Subsidiary Guarantor, to the extent and in the manner provided, in Articles Eleven and Twelve of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Subsidiary Guarantee therein made. No stockholder, officer, director or incorporator, as such, past, present or future, of each Subsidiary Guarantor shall have any liability under the Subsidiary Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. The Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Notes upon which the Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. HERMETIC SEAL CORPORATION By:_____________________________ Name: Title: By:_____________________________ Name: Title: B-7 GLASSEAL PRODUCTS, INC. By:_____________________________ Name: Title: By:_____________________________ Name: Title: SEALTRON INC. By:_____________________________ Name: Title: By:_____________________________ Name: Title: SEALTRON ACQUISITION CORP. By:_____________________________ Name: Title: By:_____________________________ Name: Title: B-8 HCC INDUSTRIES INTERNATIONAL By:__________________________ Name: Title: By:__________________________ Name: Title: B-9 ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint ________________________________________, agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: ___________________ Signed:______________________________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ____________________________ (Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended). B-10 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate box: Section 4.16 [ ] Section 4.17 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the amount you elect to have purchased: $___________________ Dated:__________________ _____________________________________________ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee:____________________________________ (Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended). B-11 Exhibit C --------- Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors ----------------------------------------- ___________, ____ _________________________________ __________________________ __________________________ Attention: ______________________ Re: HCC Industries Inc. __% Senior Subordinated Notes due 2007 -------------------------------------- Ladies and Gentlemen: In connection with our proposed purchase of __% Senior Subordinated Notes due 2007 (the "Notes") of HCC Industries Inc. (the "Company"), we confirm that: 1. We have received a copy of the Offering Memorandum (the "Offering Memorandum"), dated May 1, 1997 relating to the Notes and such other information as we deem necessary in order to make our investment decision. We acknowledge that we have read and agreed to the matters stated on pages 98 and 99 of the Offering Memorandum and in the section entitled "Transfer Restrictions" of the Offering Memorandum, including the restrictions on duplication and circulation of the Offering Memorandum. 2. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture relating to the Notes (as described in the Offering Memorandum) and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 3. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell or otherwise transfer any Notes prior to the date which is three years after the original issuance of the Notes, we will do so only (i) to the Company or any of its subsidiaries, (ii) inside the United States in accordance with Rule 144A under the Securities Act to a C-1 "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), (iii) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the Trustee (as defined in the Indenture relating to the Notes), a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Notes, (iv) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (vi) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 4. We are not acquiring the Notes for or on behalf of, and will not transfer the Notes to, any pension or welfare plan (as defined in Section 3 of the Employee Retirement Income Security Act of 1974), except as permitted in the section entitled "Transfer Restrictions" of the Offering Memorandum. 5. We understand that, on any proposed resale of any Notes, we will be required to furnish to the Trustee and the Company such certification, legal opinions and other information as the Trustee and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 6. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment, as the case may be. 7. We are acquiring the Notes purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. C-2 You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By:_____________________________ Name: Title: C-3 Exhibit D --------- Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S ----------------------------------- ______________, ____ _________________________________ _______________________ _______________________ Attention: ______________________ Re: HCC Industries Inc. (the "Company") 10-3/4% Senior Subordinated Notes due 2007 (the "Notes") ------------------------------------------ Ladies and Gentlemen: In connection with our proposed sale of $___________ aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre- arranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and D-1 (5) we have advised the transferee of the transfer restrictions applicable to the Notes. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By:_____________________________ Authorized Signature D-2 CROSS-REFERENCE TABLE
TIA Indenture Section Section - ------- --------- 310(a)(1)............................................. 7.10 (a)(2)............................................. 7.10 (a)(3)............................................. N.A. (a)(4)............................................. N.A. (a)(5)............................................. 7.08; 7.10 (b)................................................ 7.08; 7.10; 13.02 (c)................................................ N.A. 311(a)................................................ 7.11 (b)................................................ 7.11 (c)................................................ N.A. 312(a)................................................ 2.05 (b)................................................ 13.03 (c)................................................ 13.03 313(a)................................................ 7.06 (b)(1)............................................. N.A. (b)(2)............................................. 7.06 (c)................................................ 7.06; 13.02 (d)................................................ 7.06 314(a)................................................ 4.07; 4.08; 13.02 (b)................................................ N.A. (c)(1)............................................. 13.04 (c)(2)............................................. 13.04 (c)(3)............................................. N.A. (d)................................................ N.A. (e)................................................ 13.05 (f)................................................ N.A. 315(a)................................................ 7.01(b) (b)................................................ 7.05; 13.02 (c)................................................ 7.01(a) (d)................................................ 7.01(c) (e)................................................ 6.11 316(a)(last sentence)................................. 2.09 (a)(1)(A).......................................... 6.05 (a)(1)(B).......................................... 6.04 (a)(2)............................................. N.A. (b)................................................ 6.07 (c)................................................ 9.05 317(a)(1)............................................. 6.08 (a)(2)............................................. 6.09 (b)................................................ 2.04 318(a)................................................ 13.01
1 (c)................................................ 13.01
- --------------------- N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 2 EX-4.3 8 REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.3 $90,000,000 HCC INDUSTRIES INC. 10 3/4% SENIOR SUBORDINATED NOTES DUE 2007 REGISTRATION RIGHTS AGREEMENT ----------------------------- May 6, 1997 Credit Suisse First Boston Corporation Furman Selz LLC c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010 Dear Sirs: HCC Industries, Inc., a Delaware corporation (the "Issuer"), proposes to issue and sell to Credit Suisse First Boston Corporation and Furman Selz LLC (collectively, the "Initial Purchasers"), upon the terms set forth in a purchase agreement of even date herewith (the "Purchase Agreement"), $90,000,000 aggregate principal amount of its 10 3/4% Senior Subordinated Notes due 2007 (the "Notes") to be unconditionally guaranteed (the "Guarantees") by Hermetic Seal Corporation, a Delaware corporation, Glasseal Products, Inc., a New Jersey corporation, Sealtron Inc., a Delaware corporation, Sealtron Acquisition Corp., a Delaware corporation and HCC Industries International, a California corporation, collectively the "Guarantors" and together with the Issuer, the "Company"). The Notes will be issued pursuant to an Indenture, dated as of May 6, 1997, (the "Indenture") among the Issuer, the Guarantors named therein and IBJ Schroder Bank & Trust Company (the "Trustee"). As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company agrees with the Initial Purchasers, for the benefit of the holders of the Notes (including, without limitation, the Initial Purchasers), the Exchange Securities (as defined below) and the Private Exchange Securities (as defined below) (collectively the "Holders"), as follows: 1. Registered Exchange Offer. The Company shall, at its own cost, prepare and, not later than 90 days after (or if the 90th day is not a business day, the first business day thereafter) the date of original issue of the Notes (the "Issue Date"), file with the Securities and Exchange Commission (the "Commission") a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act of 1933, as amended (the "Securities Act"), with respect to a proposed offer (the "Registered Exchange Offer") to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Notes, a like aggregate principal amount of debt securities (the "Exchange Securities") of the Company issued under the Indenture and identical in all material respects to the Notes (except for the transfer restrictions relating to the Notes and the provisions relating to the matters described in Section 6 hereof) that would be registered under the Securities Act. The Company shall use its best efforts to cause such Exchange Offer Registration Statement to become effective under the Securities Act within 150 days (or if the 150th day is not a business day, the first business day thereafter) after the Issue Date of the Notes and shall use its best efforts to keep the Exchange Offer Registration Statement effective for not less than 20 business days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). If the Company effects the Registered Exchange Offer, the Company will be entitled to close the Registered Exchange Offer 20 business days after the commencement thereof provided that the Company has accepted all the Notes theretofore validly tendered in accordance with the terms of the Registered Exchange Offer. Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Securities (as defined in Section 6 hereof) electing to exchange the Notes for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (a) each Holder which is a broker-dealer electing to exchange Notes, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), is required to deliver a prospectus containing the information set forth in (i) Annex A hereto on the cover, (ii) Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and (iii) Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (b) an Initial Purchaser that elects to sell Exchange Securities acquired in exchange for Notes constituting any portion of an unsold allotment is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided, however, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto, available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 90 days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Notes acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the "Private Exchange") for the Notes held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects (including the existence of restrictions on transfer under the Securities Act and the securities laws of the several states of the United States but excluding provisions relating to the matters described in Section 6 hereof) to the Notes (the "Private Exchange 2 Securities"). The Notes, the Exchange Securities and the Private Exchange Securities are herein collectively called the "Securities". In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 20 business days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply with all applicable laws. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: (x) accept for exchange all the Notes validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (y) deliver to the Trustee for cancellation all the Notes so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Notes, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange. The Indenture will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the date of original issue of the Notes. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Notes or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker- dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker- dealer, that it will receive Exchange Securities for its own account in exchange for Notes that were acquired as a result of 3 market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within 180 days of the Issue Date (or if such day is not a business day, the first business day thereafter), (iii) any Initial Purchaser so requests with respect to the Notes (or the Private Exchange Securities) not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not receive freely tradeable Exchange Securities on the date of the exchange, the Company shall take the following actions: (a) The Company shall, at its cost, as promptly as practicable (but in no event more than 30 days after so required or requested pursuant to this Section 2; file with the Commission and thereafter shall use its best efforts to cause to be declared effective a registration statement (the "Shelf Registration Statement" and, together with the Exchange Offer Registration Statement, a "Registration Statement") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined in Section 6 hereof) by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "Shelf Registration"); provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the date of its effectiveness or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) are no longer restricted securities (as defined in Rule 144 under the Securities Act, or any successor rule thereof). The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement 4 of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. Registration Procedures. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Exchange Securities received by such broker-dealer in the Registered Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders, who propose to sell Securities pursuant to the Shelf Registration Statement, as selling securityholders. (b) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; 5 (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus do not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (g) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities, pursuant to any Registration Statement, the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified 6 or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Notes or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Notes, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Notes, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such 7 registration the Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including if requested an underwriting agreement in customary form) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that the matters to be covered by such opinion shall include, without limitation, the due incorporation and good standing of the Company and its subsidiaries; the qualification of the Company and its subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(o) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities; the absence of material legal or governmental proceedings involving the Company and its subsidiaries; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 3(o) hereof; the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act, respectively; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from any documents incorporated by reference therein of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. 8 (r) In the case of the Registered Exchange Offer, if requested by any Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to such Initial Purchaser or such Participating Broker-Dealer a signed opinion in the form set forth in Section 6(c) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants to deliver to such Initial Purchaser or such Participating Broker-Dealer a comfort letter, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Notes by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on the Notes so exchanged that such Notes are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall the Notes be marked as paid or otherwise satisfied. (t) The Company will use its best efforts to (a) if the Notes have been rated prior to the initial sale of such Notes, confirm that such ratings will apply to the Securities covered by a Registration Statement, or (b) if the Notes were not previously rated, cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "Rules") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720 thereto, shall so require, engaging a "qualified independent underwriter" (as defined in such Rule) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker- dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. (v) The Company shall use its best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. Registration Expenses. The Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 1 through 3 hereof (including the reasonable fees and expenses, if any, of O'Melveny & Myers LLP, counsel for the Initial Purchasers, incurred in connection with the Registered Exchange Offer), whether or not the Registered Exchange Offer or a Shelf Registration is filed or becomes effective, and, in the event of a Shelf Registration, shall bear or reimburse the Holders of the Securities covered thereby for the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of the Securities covered thereby to act as counsel for the Holders of the Securities in connection therewith. Notwithstanding the foregoing sentence, the Company shall not be responsible for the payment of any fees and expenses incurred in connection with the performance of its obligations under Section 3(u)(i) unless otherwise agreed in writing between the Company and the broker-dealer referred to therein. 9 5. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the "Indemnified Parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker-Dealer from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker-Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder or Participating Broker-Dealer results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus (exclusive of any material included therein but not attached thereto) if the Company had previously furnished copies thereof to such Holder or Participating Broker- Dealer; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. 10 (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the exchange of the Securities, pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 11 6. Additional Interest Under Certain Circumstances. (a) Additional interest (the "Additional Interest") with respect to the Notes shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iii) below a "Registration Default": (i) If by August 4, 1997, neither the Exchange Offer Registration Statement nor a Shelf Registration Statement has been filed with the Commission; (ii) If by November 3, 1997, neither the Registered Exchange Offer is consummated nor, if required in lieu thereof, the Shelf Registration Statement is declared effective by the Commission; or (iii) If after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective (A) such Registration Statement thereafter ceases to be effective; or (B) such Registration Statement or the related prospectus ceases to be usable (except as permitted in paragraph (b)) in connection with resales of Transfer Restricted Securities during the periods specified herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Additional Interest shall accrue on the Notes over and above the interest set forth in the title of the Notes from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at a rate of 0.50% per annum (increasing by 0.50% per annum at the end of each 90-day period after such Registration Default); provided, however, that Additional Interest shall not exceed 2.0%. (b) A Registration Default referred to in Section 6(a)(iii)(B) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events, with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the day until such Registration Default is cured. (c) Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii) of Section 6(a) above will be payable in cash on the regular interest payment dates with respect to the Securities. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Securities, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30- day months), and the denominator of which is 360. (d) "Transfer Restricted Securities" means each Security until (i) the date on which such Transfer Restricted Security has been exchanged by a person other than a broker-dealer for a freely transferrable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of a Note for an Exchange Security, the date on which such Exchange Security is sold to a purchaser who receives from such broker- dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such has 12 been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Note is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 7. Rules 144 and 144A. The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Transfer Restricted Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Securities identified to the Company by the Initial Purchasers upon request. Upon the request of any Holder of Transfer Restricted Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("Managing Underwriters") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering, but shall be subject to the approval of the Company which shall not be unreasonably withheld. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company: (2) if to the Initial Purchasers, at its address as follows: Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group 13 with a copy to: O'Melveny & Myers LLP 1999 Avenue of the Stars, Suite 700 Los Angeles, CA 90067 Fax No.: (310) 246-6779 Attention: Robert Haymer, Esq. (3) if to the Company, at its address as follows: HCC Industries Inc. 4232 Temple City Boulevard P.O. Box 739 Rosemead, CA 91770-1592 Fax No.: (818) 906-8344 Attention: Chief Executive Officer with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 3rd Avenue, Room 4636 New York, NY 10022 Fax No.: (212) 735-3605 Attention: Lou R. Kling, Esq. Howard C. Ellin, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (c) No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (d) Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns. (e) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (h) Severability. If 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 (i) Securities Held by the Company. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Issuer a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the several Initial Purchasers, the Issuer and the Guarantors in accordance with its terms. Very truly yours, HCC Industries Inc. By:______________________ Name: Title: Hermetic Seal Corporation By:______________________ Name: Title: Glasseal Products, Inc. By:______________________ Name: Title: Sealtron Inc. By:______________________ Name: Title: Sealtron Acquisition Corp. By:______________________ Name: Title: HCC Industries International By:______________________ 15 Name: Title: The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. Credit Suisse First Boston Corporation Furman Selz LLC by: Credit Suisse First Boston Corporation By:_____________________________ Name: Title: 16 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Notes where such Notes were acquired by such broker-dealer as a result of market- making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Notes, where such Notes were acquired by such broker- dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Notes where such Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 199 , all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker- dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker- dealers) against certain liabilities, including liabilities under the Securities Act. ANNEX D [_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: _____________________________________________ Address: ___________________________________________ ___________________________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-9.1 9 STOCKHOLDERS AGREEMENT EXHIBIT 9.1 ================================================================================ STOCKHOLDERS AGREEMENT among HCC INDUSTRIES INC. WINDWARD CAPITAL ASSOCIATES, L.P. WINDWARD/PARK HCC, L.L.C. WINDWARD/MERCHANT, L.P. WINDWARD/MERBAN, L.P. and THE OTHER STOCKHOLDERS LISTED HEREIN Dated as of February 14, 1997 ================================================================================ TABLE OF CONTENTS Page ---- BACKGROUND.............................................................. 1 ARTICLE I DEFINITIONS............................................................. 3 1.1 Definitions................................................... 3 ARTICLE II CORPORATE GOVERNANCE.................................................... 15 2.1 Voting Rights in Charter; Voting Matters Related to Charter Documents................................ 15 2.2 Designation of Directors...................................... 16 2.3 Replacement of Nominees....................................... 18 2.4 Calling Special Meetings for the Removal of Nominees................................................. 19 2.5 Calling Special Meetings for the Enforcement of Corporate Governance Provisions............................. 19 2.6 Removal for Cause............................................. 19 2.7 Grant of Proxies.............................................. 20 2.8 Voting Agreement.............................................. 20 ARTICLE III RESTRICTIONS ON TRANSFER; RIGHTS OF FIRST REFUSAL....................... 21 3.1 Restrictions on Transfer...................................... 21 3.2 Rights of First Refusal Generally............................. 22 3.3 Apportionment of Shares Among Stockholders in the Event of Over-Subscription........................... 24 3.4 Apportionment of Shares Among Stockholders in the Event of Failure to Purchase......................... 25 3.5 Transfer Mechanics............................................ 26 3.6 Transfers to Third Parties after Stock holders Decline Rights of First Refusal..................... 26 3.7 Exceptions to Rights of First Refusal......................... 27 ARTICLE IV TAG-ALONG RIGHTS........................................................ 28 4.1 Tag-Along Rights Generally.................................... 28 4.2 Allocation of Shares of Tag-Along Stock....................... 29 4.3 Transfer Mechanics............................................ 30 i Page ---- 4.4 Transfers to Third Parties after Stock holders Decline Tag-Along Rights............................ 31 4.5 Exceptions to Tag-Along Rights................................ 31 ARTICLE V RIGHTS TO COMPEL SALE OR IPO EVENT...................................... 32 5.1 Rights to Compel Sale Generally............................... 32 5.2 Compelled Sale Pursuant to a Sale of Company Stock............ 32 5.3 Compelled Sale Other Than Pursuant to a Sale of Company Stock 5.4 Cooperation in Connection with Compelled Sale................. 35 5.5 Notice of Consummation of Compelled Sale...................... 35 5.6 Rights to Compel IPO Event.................................... 36 ARTICLE VI PREEMPTIVE RIGHTS....................................................... 37 6.1 Preemptive Rights............................................. 37 ARTICLE VII PUT AND CALL RIGHTS ON MANAGEMENT STOCK................................. 38 7.1 Put and Call Rights........................................... 38 7.2 Obligation to Sell Several.................................... 42 7.3 Deferral of Purchases......................................... 42 7.4 Payment for Stock............................................. 43 7.5 Miscellaneous................................................. 44 7.6 Proxy and Escrow of Company Stock............................. 45 ARTICLE VIII COMPANY COVENANTS....................................................... 45 8.1 Affiliated Arrangements....................................... 45 8.2 Financial Reports............................................. 46 8.3 Access to Information......................................... 46 8.4 FIRPTA Activities............................................. 46 ARTICLE IX REGISTRATION RIGHTS..................................................... 46 9.1 Demand Registration Rights.................................... 46 9.2 Piggyback Registration Rights................................. 49 9.3 Priority in Piggyback Registrations........................... 51 9.4 Expenses...................................................... 53 ii Page ---- 9.5 Restrictions on Public Sale by Stockholders and Company....... 53 9.6 Indemnification by the Company................................ 55 9.7 Indemnification by the Stockholders and Underwriters.......... 56 9.8 Notices of Claims, Etc........................................ 57 9.9 Other Indemnification......................................... 58 9.10 Registration Procedure....................................... 58 9.11 Rule 144..................................................... 62 ARTICLE X ADDITIONAL STOCKHOLDERS................................................. 63 10.1 Transferees of Stockholders or the Company................... 63 10.2 New Stockholders............................................. 63 10.3 Supplemental Agreements...................................... 64 ARTICLE XI STOCK LEGENDS........................................................... 64 11.1 Stock Certificate Legend..................................... 64 ARTICLE XII APPOINTMENT OF AGENTS................................................... 65 12.1 Appointment of Agent for Windward Group Matters.............. 65 12.2 Appointment of Agent for the Management Stockholders......... 68 ARTICLE XIII TERM OF AGREEMENT....................................................... 69 13.1 Term......................................................... 69 ARTICLE XIV MISCELLANEOUS........................................................... 69 14.1 Confidentiality.............................................. 69 14.2 Specific Performance......................................... 70 14.3 Consent to Jurisdiction, Etc................................. 71 14.4 Attorneys' Fees.............................................. 71 14.5 Headings; No Third Party Beneficiaries....................... 72 14.6 Entire Agreement............................................. 72 14.7 Notices...................................................... 72 iii Page ---- 14.8 Applicable Law............................................... 74 14.9 Severability................................................. 74 14.10 Successors; Assigns; Transferees; Amendments; Waivers 14.11 Defaults; No Circumvention of Agreement..................... 75 14.12 Further Assurances.......................................... 75 14.13 Counterparts................................................ 76 14.14 Recapitalization, etc....................................... 76 iv STOCKHOLDERS AGREEMENT ---------------------- STOCKHOLDERS AGREEMENT dated as of February 14, 1997 (the "Agreement"), by and among HCC Industries Inc., a Delaware corporation (the "Company"), Windward Capital Associates, L.P., a Delaware limited partnership ("Windward"), Windward/Park HCC, L.L.C., a Delaware limited liability company ("Windward/Park"), Windward/Merban, L.P., a Delaware limited partnership ("Windward/Merban"), Windward/Merchant, L.P., a Delaware limited partnership ("Windward/Merchant") and the persons listed in the Schedule of Management Stockholders attached hereto (such persons, together with any employees of the Company or its subsidiaries who become parties to this Agreement pursuant to the terms and conditions of this Agreement and each of their respective Permitted Transferees (as defined herein), are referred to herein, collectively, as the "Management Stockholders"), and such other persons or entities who or which become parties to this Agreement pursuant to the terms and conditions of this Agreement. Windward, Windward/Park, Windward/Merban and Windward/Merchant, together with their respective Permitted Transferees, shall be referred to collectively in this Agreement as the "Windward Group". BACKGROUND ---------- WHEREAS, pursuant to the terms and conditions of the First Amendment and Restatement of the Stock Purchase and Sale Agreement dated as of February 14, 1997 (the "Stock Purchase Agreement"), by and among the Company, the Windward Group, Metropolitan Life Insurance Company ("MetLife") and certain stockholders of the Company set forth on the signature pages thereto, among other things, (a) the Company has agreed to issue to the members of the Windward Group, and the members of the Windward Group have agreed to acquire from the Company, 96,335 shares of Common Stock, par value $.10 per share, of the Company (the "Common Stock") (representing in the aggregate approximately 67% of the Company's total outstanding capital stock (without giving effect to the exercise of any outstanding options, the Warrants (as defined below) or other similar securities)) and (b) the Company has agreed to purchase from certain stockholders of the Company who are parties to the Stock Purchase Agreement and such stockholders have agreed to sell to the Company certain shares of Common Stock as set forth in the Stock Purchase Agreement; WHEREAS, pursuant to the terms and conditions of the Stock Purchase Agreement, at the Closing (as defined in the Stock Purchase Agreement), the Company has agreed to issue to Windward/Merban, Windward/Merchant and Windward/Park, and Windward/Merban, Windward/Merchant and Windward/Park have agreed to acquire from the Company, certain warrants to acquire additional shares of Common Stock (subject to the conditions set forth in such warrants) (such warrants, as more fully described in the Stock Purchase Agreement, the "Warrants"); WHEREAS, pursuant to the terms and conditions of the Stock Purchase Agreement, the Company has the right to repurchase and acquire from Windward/Merban, Windward/Merchant and Windward/Park the Warrants and certain of the shares of Common Stock purchased by Windward/Merban, Windward/Merchant and Windward/Park pursuant to the Stock Purchase Agreement as set forth in Section 7.3 of the Stock Purchase Agreement; WHEREAS, after the Closing , the Company has agreed to grant options to purchase additional shares of Common Stock to certain employees of the Company and its subsidiaries, such options to be subject to the terms (including performance criteria) set forth in the plan governing such options and, upon exercise, such employees will, to the extent they are not otherwise parties hereto, become parties to this Agreement pursuant to Article X hereof; WHEREAS, after the Closing, the Company may offer and sell additional shares of Common Stock to certain other persons and to employees of the Company and its subsidiaries and such employees will, to the extent they are not otherwise parties hereto, become parties to this Agreement pursuant to Article X hereof; WHEREAS, pursuant to and subject to the terms and conditions of Article XII hereof, each of the members of the Windward Group have designated and appointed Windward as its attorney-in-fact, agent and representative to act on its behalf and on behalf of its Permitted Transferees in connection with this Agreement (in such 2 capacity, Windward, and any successor thereof appointed pursuant to such Article XII, shall hereinafter be referred to as "the Windward Agent"); and WHEREAS, the Stockholders believe it to be in their best interests and in the best interests of the Company that they enter into this Agreement providing for certain rights and restrictions with respect to the shares of Common Stock owned by them or their permitted transferees. NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth in this Agreement, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms ----------- shall have the meanings ascribed to them below (such terms to be equally applicable to both singular and plural forms of the terms defined or referred to): (a) The term "Affiliate" or "affiliate" shall mean, with respect to --------- --------- any specified person, (x) any director or officer of, or any person that beneficially owns at least 5% of the capital stock or other equity interests of, such specified person, or (y) any other person directly or indirectly controlling, controlled by, or under common control with, such specified person, at any time during the period for which the determination of affiliation is being made; provided that in the case of a person who is an individual, such -------- terms shall also include members of such specified person's immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act). (b) The term "Board" shall mean the Board of Directors of the Company. ----- (c) The term "Bona Fide Offer" shall mean any offer by a Third Party --------------- in writing, setting forth a specific purchase price and a closing date of no more than 3 thirty days therefrom, which is fully financed and not subject to any material conditions. (d) The term "Book Value" shall mean, as to (x) each share of Common ---------- Stock, the sum of (i) the price per share of Common Stock paid by the Windward Entities pursuant to the Stock Purchase Agreement and (ii) the increase (or minus the decrease) in the book value per share of Common Stock (as determined in accordance with GAAP, calculated on a Fully-Diluted Basis) for the period commencing on the first day of the first fiscal quarter of the Company following the date hereof through and until the last day of the fiscal quarter of the Company immediately preceding the date on which book value shall be determined, and (y) as to each share of Company Stock subject to an Option, the positive difference between the Book Value as calculated pursuant to clause (x) of this definition and the applicable exercise price per share of Company Stock of such Option. (e) The term "Business Day" shall mean any calendar day which is not ------------ a Saturday, Sunday or public holiday under the laws of the State of New York. (f) The term "Cause", used in connection with the termination of ----- employment of any Management Stockholder by the Company or any subsidiary of the Company, shall mean a termination due to a finding by the Board in good faith that such Management Stockholder has (a) been engaged in an act or acts of dishonesty that were intended to and did result directly or indirectly in more than an aggregate of $5,000 in gain or personal enrichment to employee at the expense of the Company; (b) failed to substantially perform employee's duties under his applicable employment agreement, if any (other than failure resulting from employee's Disability), persisting for a reasonable period following the delivery to employee of written notice specifying the details of any alleged failure to perform, which failure has resulted in demonstrable and material injury and damage to the Company; (c) violated or failed to comply in any material respect with the Company's published rules, regulations or policies, as in effect from time to time; (d) breached the applicable employment agreement, if any, in any material respect; or (e) been convicted of a felony offense or a misdemeanor offense involving fraud, theft or dishonestly at any time, which conviction employee failed to disclose 4 to the Company; or (f) been incarcerated for more than 10 days. (g) The term "Change of Control" shall mean the occurrence of any of ----------------- the following events: i) the sale, lease, transfer or other disposition of all or substantially all of the assets of Company or its subsidiaries (taken as a whole) to any person or related group of persons other than the Stockholders; ii) the merger or consolidation of the Company with or into another corporation, or the merger of another corporation into the Company, with the effect that persons other than the Stockholders (and their Permitted Transferees or any "group" (as defined in the rules promulgated under Section 13(d) of the Exchange Act) of which any Stockholder or any Permitted Transferee is a member) hold more than 50% of the total voting power on a Fully Diluted Basis entitled to vote in the election of directors, managers or trustees of the surviving corporation of such merger or the corporation resulting from such consolidation; and iii) any other event which results in a Person or a "group" other than the Stockholders (and their Permitted Transferees or any "group" of which any Stockholder or any Permitted Transferee is a member) holding, directly or indirectly, in the aggregate more than 50% of common stock outstanding at such time, after giving effect to the issuance of all shares of Company Stock issuable (i) upon conversion of all convertible securities outstanding at such time and (ii) upon exercise of all other warrants, options and other rights outstanding at such time. (h) The term "Common Stock" shall mean the capital stock named as ------------ "Common Stock" in the second paragraph of this Agreement, and any and all shares of capital stock or other securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise), which may be issued in respect of, in exchange for, or in substitution for any shares of Common Stock, by reason of any stock dividend, split, reverse split, combination, recapital- 5 ization, reclassification, merger, consolidation or otherwise. (i) The term "Company" shall mean the person named as the "Company" ------- in the first paragraph of this Agreement, and any successor or assign thereof. (j) The term "Company Stock" shall mean the Common Stock and any ------------- other capital stock of any class or series of the Company, and any securities of the Company convertible into, or exercisable or exchangeable for, any such Common Stock or other capital stock of the Company (including, without limitation, (i) shares of Common Stock issued (or issuable) pursuant to the Stock Purchase Agreement, (ii) shares of Common Stock issued pursuant to the Company Stock Option Plan or any other stock option plan or employee benefit or other incentive plan presently in effect or which may be adopted by the Company after the date hereof, (iii) shares of Common Stock issued (or issuable) upon exercise of the Warrants, any other warrants or upon exercise of preemptive rights granted by the Company, (iv) the Warrants and any warrants or options to purchase Common Stock (the "Options"), and (v) shares of Common Stock issued and outstanding prior to the date hereof). The term "Company Stock" shall include, except as otherwise provided herein, any and all shares of capital stock or other securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise), which may be issued in respect of, in exchange for, or in substitution for any shares of Company Stock, by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. (k) The term "Company Stock Option Plan" shall mean the HCC ------------------------- Industries Inc. 1997 Stock Option Plan, adopted by the Company as of the date hereof pursuant to the Stock Purchase Agreement. (l) The term "control", when used with respect to any person, shall ------- mean the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. 6 (m) The term "Credit Agreement" shall mean the Credit Agreement dated ---------------- as of the date hereof among the Company, the Lenders (as defined therein), and Fleet Capital Corporation, as agent for the Lenders, as the same may be amended from time to time. (n) The term "Disability" shall mean the inability of the Management ---------- Stockholder to substantially render to the Company the services required by the Company in accordance with his job for more than 60 days out of any consecutive 120 day period because of mental or physical illness or incapacity, as determined in good faith by the Board. The date of such Disability shall be on the last day of such 60 day period. (o) The term "Duly Endorsed" shall mean (i) duly endorsed in blank by ------------- the person or persons in whose name a stock certificate or certificate representing a debt security is registered or (ii) accompanied by a duly executed stock or security assignment separate from the certificate, in each case with the signature(s) thereon guaranteed by a commercial bank or trust company or a member of a national securities exchange or of the National Association of Securities Dealers, Inc. (p) The term "EBITDA" shall mean the consolidated net income (or ------ loss) of the Company and its subsidiaries, excluding (to the extent net income is reduced or increased or net loss is increased or reduced thereby), without duplication, (a) interest expense, (b) provisions for taxes based on income, (c) depreciation expense, (d) amortization expense from intangibles and goodwill, (e) extraordinary gains or losses, (f) gains or losses on the sale or disposal of assets, (g) the cumulative effect of any changes in accounting principles, (h) the granting or modification of options under option (and similar) plans (other than legal and other costs incurred in connection with the establishment and administration of such plan), (i) investment income and losses, and (j) non- cash amounts that relate to capitalized inventory, in each case as shown on the Company's unaudited (or audited, with respect to any four fiscal quarters for which audited statements are otherwise available) consolidated financial statements for the four fiscal quarters of the Company ending immediately prior to the particular date on which the EBITDA calculation is being made, in each case calculated in accordance with GAAP. 7 (q) The term "Exchange Act" shall mean the Securities Exchange Act of ------------ 1934, as amended, and the rules and regulations promulgated thereunder. (r) The term "Fair Market Value", used in connection with the value ----------------- of (x) a share of Company Stock, shall mean the quotient of (i) the excess of (1) product of (A) 6.5 multiplied by (B) the amount of EBITDA, as shown on the Company's unaudited (or audited, with respect to any four fiscal quarters for which audited statements are otherwise available) consolidated financial statements for the four fiscal quarters of the Company ending immediately prior to the particular date of termination of employment in question (or, in the event that the periods during which the exercise of the rights pursuant to Section 7.1 hereof are deferred pursuant to Section 7.3 hereof, immediately prior to the first date on which such periods recommence pursuant to such Section 7.3), over (2) the amount of Net Indebtedness as of the end of the period in question, divided by (ii) the total number of shares of Company Stock (calculated on a Fully-Diluted Basis), and (y) a share of Company Stock subject to an Option shall mean the positive difference between Fair Market Value as calculated pursuant to clause (x) of this definition and the applicable exercise price per share of Company Stock of such Option. (s) The term "Financing Default" shall mean an event or circumstance ----------------- which would constitute (or with notice or lapse of time or both would constitute) an event of default under either the Subordinated Note Agreement or the Credit Agreement, or any other indebtedness incurred by the Company ranking senior to or pari passu with the indebtedness incurred pursuant to the ---- ----- Subordinated Notes, or any refunding, refinancing or extension of any of the foregoing (including, without limitation, any debt offering pursuant to Rule 144A promulgated under the Securities Act), as such agreements may be amended from time to time, and which event or circumstance has not been waived or cured. (t) The term "Fully-Diluted Basis" shall mean, with respect to any ------------------- calculation of the outstanding number of shares of Company Stock or the outstanding amount of common equity of the Company (as the case may be), an amount equal to the total outstanding number of shares of Company Stock and all other shares of common stock of the 8 Company, calculated without duplication and assuming the conversion of all outstanding shares of convertible capital stock and securities of the Company and the exercise of all warrants, options and other rights (including, without limitation, employee stock options pursuant to the Company Stock Option Plan and the Warrants (except that, with respect to such options and the Warrants, if any such options are finally determined to be less than 100% vested or if any such Warrants are finally determined to be less than 100% exercisable, only those shares of Company Stock which may be exercised following such final determination shall be included in such calculation)) to purchase shares of Company Stock or other common stock of the Company. (u) The term "GAAP" shall mean U.S. generally accepted accounting ---- principles, as in effect on the date any calculation thereunder is made, applied on a basis consistent with prior periods. (v) The term "IPO Event" shall mean an initial public offering of --------- capital stock by the Company involving the Registration and sale of an aggregate of $25 million or more of common equity of the Company, whether involving a primary offering or a combined primary and secondary offering, and pursuant to which the Company becomes listed on a national securities exchange or on the Nasdaq Stock Market or Nasdaq National Market; provided that in the event that -------- the Windward Agent consents to an initial public offering that involves the Registration and sale of less than $25 million of common equity of the Company, then an IPO Event shall be deemed, for purposes of this Agreement, to mean a Registration which, when taken together with all other Registrations, constitutes a sale by the Company, its stockholders or any combination thereof, of $25 million or more of common equity of the Company (as calculated in the manner set forth above). (w) The term "Net Indebtedness" shall mean (i) Indebtedness (as ---------------- defined in the Credit Agreement) less (ii) cash and cash equivalents (other than cash held in the Deferred Purchase Price Fund established pursuant to the Deferred Purchase Price Agreement and the Escrow Agreement (each as defined in the Stock Purchase Agreement)), in each case, of the Company as shown on the 9 Company's most recently available balance sheet prior to the date of determination. (x) The term "Permitted Transferee" of a Stockholder shall mean the -------------------- Company and: i) in the case of any member of the Windward Group, (A) corporations, partnerships or other entities which are Affiliates of any member (or any general or limited partner or equity holder of any member) of the Windward Group (collectively, the "Windward Affiliates"), (B) any general partner, limited partner, controlling shareholder, director, officer, managing director or other employee of Windward or any Windward Affiliate (collectively, the "Windward Associates"), (C) the lineal descendants, heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any Windward Associate and (D) any trust, the beneficiaries of which, or corporation or partnership, the stockholders or general or limited partners of which, include only a Windward Associate, his or her spouse, members of his or her immediate family or his or her lineal descendants, to which any such member of the Windward Group, a Windward Affiliate or a Windward Associate has transferred shares of Company Stock; and ii) in the case of a Management Stockholder, (A) the lineal descendants, heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any Management Stockholder and (B) any trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only a Management Stockholder, his or her spouse, members of his or her immediate family or his or her lineal descendants, to which a Management Stockholder has transferred shares of Company Stock; provided that in each case (1) each such transferor has obtained the prior - -------- written consent of the Company (which consent shall not be withheld unless, in the opinion of the Company, such transfer together with all other transfers of Company Stock made after the Closing could result in or create a significant risk (as defined below) that the Company may become subject to, or after any Registration will continue to be subject to, the informational requirements of the Exchange Act) and (2) each such transferee (other than the Company) has agreed in writ- 10 ing, in accordance with Article X hereof, to be bound by the terms and conditions of this Agreement to the same extent and in the same manner as the Stockholder transferring such shares of Company Stock; provided further that -------- ------- the transfer to any such person is in compliance with all applicable federal, state and foreign securities laws. For the purposes of this Section 1.1(t), a "significant risk" shall be deemed to arise when the number of "holders of record" (as determined in accordance with the Exchange Act) is greater than 80% of the number of "holders of record" that would cause the application or continued application of the informational requirements of the Exchange Act under the then existing circumstances. (y) The term "person" shall mean an individual, partnership, ------ corporation, business trust, joint stock company, trust, unincorporated association, joint venture, or other entity of whatever nature. (z) The term "Piggyback Securities" shall mean those Registrable -------------------- Securities which are requested to be sold by any Stockholder pursuant to Section 9.2 hereof. (aa) The term "Registrable Securities" shall mean shares of Common ---------------------- Stock (including, without limitation, shares of Common Stock issued pursuant to the Stock Purchase Agreement, shares of Common Stock issued pursuant to the Company Stock Option Plan or any other stock option plan or employee benefit or other incentive plan presently existing or which may be adopted by the Company after the date hereof, shares of Common Stock issued upon exercise of any warrants or options or upon exercise of preemptive rights granted by the Company, and shares of Common Stock issued and outstanding prior to the date hereof) and any other equity securities of the Company or any successor corporation issued in exchange for or in respect of such shares of Common Stock. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) such securities shall have been registered under the Securities Act, the registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of pursuant to such effective registration statement, (ii) such securities shall have been distributed pursuant to Rule 144 (or any similar provision then in 11 force) under the Securities Act, (iii) such securities shall have been otherwise transferred, if new certificates or other evidences of ownership for them not bearing a legend restricting further transfer and not subject to any stop transfer order or other restrictions on transfer shall have been delivered by the Company and subsequent disposition of such securities shall not require registration or qualification of such securities under the Securities Act or any state securities laws then in force or (iv) such securities shall cease to be outstanding. (ab) The term "Registration" shall mean a bona fide public offering ------------ ---- ---- of the Company's securities pursuant to an effective registration statement under the Securities Act and in compliance with all applicable state securities laws. (ac) The term "Registration Expenses" shall mean all expenses of the --------------------- Company incident to the Company's performance of or compliance with Article IX hereof, including, without limitation, all SEC and stock exchange or National Association of Securities Dealers, Inc. ("NASD") registration, filing and listing fees and expenses, fees and expenses of compliance with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), rating agency fees, all fees and expenses of the transfer agent and registrar for the Common Stock, printing expenses, messenger and delivery expenses, the reasonable fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange or national market system on which Registrable Securities are to be listed or on which similar securities issued by the Company are to be listed in connection with such transaction, reasonable fees and disbursements of counsel for the Company and all independent certified public accountants for the Company (including the expenses of any annual audit, special audit and "cold comfort" letters required in connection therewith or incident thereto), securities laws liability insurance (if the Company so desires or if the underwriters so desire), the reasonable fees and disbursements of underwriters customarily paid by issuers or sellers of securities, all fees and expenses of any qualified independent underwriter or any person acting in 12 a similar capacity under the rules of the NASD, the reasonable fees and disbursements of one counsel retained in connection with each such registration by the Stockholders who hold a majority of the Registrable Securities being registered, the reasonable fees and expenses of any special experts retained by the Company in connection with such registration, and fees and expenses of other persons retained by the Company (but not including any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Securities by the holders of such Registrable Securities). (ad) The term "Representative" shall mean, with respect to a -------------- particular person, any director, officer, general partner, limited partner, co- owner, member, nominee, managing director or controlling person of such person. (ae) The term "Retirement" shall mean, with respect to a Management ---------- Stockholder, the Management Stockholder's retirement as an employee of the Company or any Company subsidiary in accordance with the policies of the Company or such subsidiary. (af) The term "Securities Act" shall mean the Securities Act of 1933 -------------- and the rules and regulations promulgated thereunder. (ag) The term "SEC" shall mean the United States Securities and --- Exchange Commission. (ah) The term "Stockholders" shall mean (i) each of the members of ------------ the Windward Group, (ii) the Management Stockholders, (iii) persons who or which have acquired shares of the Company's capital stock from, and are Permitted Transferees of, any of them, and any combination of them, and (iv) such other persons who or which become parties to this Agreement pursuant to the terms and conditions of this Agreement. (ai) The term "Subordinated Notes" shall mean the 12% Subordinated ------------------ Notes in the aggregate principal amount of $22,500,000 to be issued by the Company to MetLife, Windward/Merban and Windward/Merchant pursuant to the Subordinated Note Agreement, dated as of the date hereof, between the Company, MetLife, Windward/Merban and 13 Windward/Merchant (the "Subordinated Note Agreement"), as the same may be amended from time to time. (aj) The term "subsidiary" shall have the same meaning as set forth ---------- in the Stock Purchase Agreement. (ak) The term "Third Party" shall mean, with respect to any ----------- Stockholder, any person other than (i) such Stockholder's Permitted Transferees and (ii) the Company. (al) The term "Transfer" shall mean any direct or indirect sale, -------- assignment, mortgage, transfer, pledge, gift, hypothecation or other disposition of or transfer of capital stock (other than any bona fide pledge or ---- ---- hypothecation of capital stock to a financial institution(s) in connection with any loan from such financial institution(s)). (am) The term "Violation" shall mean, with respect to any purchase --------- of shares of Company Stock, any event or circumstance pursuant to which the purchase of such shares (together with any other purchases of Company Stock pursuant to this Agreement of which the Company has at such time been given or has given notice) would (A) conflict with or result in a violation of or breach (or any event which with lapse of time or the occurrence of any act or event or otherwise would constitute or result in any of the foregoing) any law, statute, rule, regulation, order, writ, injunction, decree or judgment promulgated or entered by any federal, state, local or foreign court or governmental authority applicable to the Company or its subsidiaries or any of their properties or assets or (B) violate or conflict with or constitute a breach or default, or an event creating rights of acceleration or termination (in each case, whether upon lapse of time or the occurrence of any act or event or otherwise), under any agreement to which the Company or any of its subsidiaries is a party or by which any of their properties or assets may be bound. (an) The term "Voluntary Termination" shall mean the voluntary --------------------- termination by a Management Stockholder of his or her employment with the Company or any Company subsidiary by voluntary resignation or any other means, other than (i) in connection with the Retirement, Disability or death of such Management Stockholder or 14 (ii) simultaneous with or following termination for Cause or at a time when there is in existence or outstanding any matter, event or circumstance which if known to the Company at the time of such voluntary termination by the Management Stockholder of his or her employment would have allowed the Company or any Company subsidiary to have terminated the Management Stockholder's employment for Cause (regardless of whether the Company knew, or should have known, of such matter, event or circumstance). A Voluntary Termination shall be for "Good Reason" if it follows, within a reasonable period of time thereafter, (x) a material breach of the Company's obligations under the applicable employment agreement, if any, with such Management Stockholder, or (y) the Board, by vote in accordance with Article II hereof, but excluding those directors who are officers or employees, or former officers or employees, of the Company or its subsidiaries, determines in its sole discretion that a Voluntary Termination by the Management Stockholder is for "Good Reason" under the circumstances then prevailing. ARTICLE II CORPORATE GOVERNANCE 2.1 Voting Rights in Charter; Voting Matters Related to Charter ----------------------------------------------------------- Documents. - --------- (a) The parties hereto acknowledge that the Company's Restated Certificate of Incorporation (as amended as contemplated hereby, the "Certificate") and by-laws ("By-laws") shall be amended on the date hereof (and each of the Stockholders agrees to use its respective best efforts to effect such amendment) to provide that in order for the Board (or any committee of the Board) to take any action (except as specifically provided for herein), in addition to any other requirements under the General Corporation Law of the State of Delaware, the approval of the members of the Board (or such committee of the Board) that are Windward Nominees acting by majority vote (or by written consent) would be required in order for the Company to take any action for which Board approval would be required. Any committee of 15 the Board established by the Board in accordance with its Certificate and By- laws shall include at least one Windward Nominee. (b) From and after the Closing, each Stockholder shall vote its shares of Company Stock (to the extent entitled to vote), at each regular or special meeting of stockholders of the Company or in any written consent executed in lieu of such a meeting of stockholders, and shall take all actions reasonably necessary, to ensure that the Certificate or Company's By-laws (x) are consistent with the provisions of Section 2.1(a) above and (y) do not, at any time, conflict with the provisions of this Agreement. From and after the Closing, each Stockholder shall use its reasonable best efforts to cause its respective Nominees (as defined below), if any, to act in a manner consistent with the provisions of this Agreement (including, without limitation, the provisions of Section 2.1(a) above). (c) Any act or action to be taken or permitted to be taken by the Company pursuant to the terms of, or any amendment, modification, or waiver of, (i) this Agreement, (ii) the Stock Purchase Agreement (following the closing thereunder), (iii) any Ancillary Agreement (as defined in the Stock Purchase Agreement), (iv) any employee stock, bonus or other incentive plan or arrangement, or (v) any other agreement or arrangement contemplated hereby or thereby, shall require approval or action by the Board in accordance with the provisions of this Article II. 2.2 Designation of Directors. ------------------------ (a) From and after the Closing, each of the Stockholders shall vote its shares of Company Stock (to the extent entitled to vote), at each regular or special meeting of the stockholders of the Company called for the purpose of filling positions on the Board, or in any written consent executed in lieu of such a meeting of stockholders, and shall take all actions reasonably necessary, to ensure the election to the Board of the following individuals: (i) two (2) individuals (the "Windward Nominees") selected by the Windward Agent who may be affiliated with Windward; (ii) one (1) individual selected by the holders of a majority of the percentage interests (the "Majority WP Holders") in Windward/Park 16 (the "Windward/Park Nominee"), provided, however, that in the event that at the -------- ------- end of any thirty consecutive day period in which the Majority WP Holders shall have failed to select the Windward/Park Nominee, then the Windward Agent shall select the Windward/Park Nominee to serve until such time as the Majority WP Holders shall select an individual to serve as the Windward/Park Nominee (at which time the individual appointed by the Windward Agent to serve as the Windward/Park Nominee shall resign and be replaced by the individual selected by the Majority WP Holders in accordance with Article II hereof); (iii) three (3) individuals (the "Independent Nominees") selected by the Windward Agent who shall not be employees of Windward; and (iv) three (3) individuals (the "Management Stockholder Nominees") selected by the Management Stockholders (or by the Management Stockholders and the Permitted Transferees of the Management Stockholders, if any, as the Management Stockholders and such Permitted Transferees may agree between or among themselves by the affirmative vote of the holders of a majority of the shares of Company Stock owned by such persons). To effectuate the provisions of this Section 2.2, the Secretary of the Company, or if there be no Secretary such other officer of the Company as the Board may appoint to fulfill the duties of Secretary (the "Secretary"), shall not record, and the Company shall not give effect to, any vote or consent contrary to, or inconsistent with, the terms of this Section 2.2. The Windward Nominees, the Windward/Park Nominee, the Independent Nominees and the Management Stockholder Nominees are sometimes collectively referred to herein as the "Nominees" and individually as a "Nominee." From and after the Closing, Majority WP Holders shall be entitled to designate (subject to the reasonable approval of the Board) one (1) individual who shall be entitled to notice of, and shall be entitled to attend, all meetings of the Board (such designee, the "Windward/Park Observer"). The Windward/Park Observer shall not be (X) permitted to vote at any meeting of the Board or on any matter which may be considered by the Board or (Y) counted for purposes of determining whether there is sufficient quorum for the Board to conduct its business. The parties hereto acknowledge and agree that the Windward/Park Observer shall owe no fiduciary or other duties to the Stockholders or otherwise have any director or 17 fiduciary duties or liabilities to the Company or its Stockholders. (b) The Management Stockholders (or the Management Stockholders and the Permitted Transferees of the Management Stockholders, if any) may recommend to the Windward Agent up to two (2) individuals for consideration by the Windward Agent in selecting the Independent Directors; provided, however, the -------- ------- parties hereto acknowledge that the Windward Agent shall have the final determination as to the selection of the Independent Nominees and as such the Windward Agent may accept or reject the recommendations of the Management Stockholders (or the Management Stockholders and the Permitted Transferees of the Management Stockholders, if any) for any reason and under any circumstances in the sole discretion of the Windward Agent. For purposes of determining the individuals to be recommended in accordance with the foregoing sentence, the Management Stockholders (and their Permitted Transferees, if any) may agree on such individuals between or among themselves by the affirmative vote of the holders of a majority of the shares of Company Stock owned by such persons. 2.3 Replacement of Nominees. If, prior to his election to the Board ----------------------- pursuant to Section 2.2 hereof, any Nominee shall be unable or unwilling to serve as a director of the Company, the Stockholder or Stockholders who nominated any such Nominee shall be entitled to nominate a replacement who shall then be a Nominee for purposes of this Article II. If, following election to the Board pursuant to Section 2.2 hereof, any Nominee shall resign, die or be removed or be unable to serve for any reason prior to the expiration of his term as a director of the Company, the Stockholder or Stockholders who nominated such Nominee shall within 30 days of such event, notify the Board in writing of a replacement Nominee, and all Stockholders shall vote their shares of Company Stock (to the extent entitled to vote), at any regular or special meeting called for the purpose of filling positions on the Board, or in any written consent executed in lieu of such a meeting of stockholders, and shall take all actions necessary, to ensure the election to the Board of such replacement Nominee to fill the unexpired term of the Nominee whom such new Nominee is replacing; provided that no person may be selected by a Stockholder or group of - -------- Stockholders as a Nominee if such person previously 18 served as a director of the Company and was previously removed for Cause in accordance with Section 2.6 hereof. If a Stockholder or Stockholders shall fail to so notify the Board, the Board may, in the event that there is an insufficient number of directors to constitute a quorum or otherwise conduct any business before the Board, nominate any other person to fill the vacancy. 2.4 Calling Special Meetings for the Removal of Nominees. Each ---------------------------------------------------- Stockholder hereby agrees to use such Stockholder's best efforts to call, or cause the appropriate officers and directors of the Company to call, a special meeting of stockholders of the Company and to vote all of the shares of Company Stock (to the extent entitled to vote) owned or held of record by such Stockholder for, or to take all actions by written consent in lieu of any such meeting necessary to cause, the removal (with or without Cause) of any director if the persons designating such director pursuant to Section 2.2 hereof request, in a writing signed by the holders of a majority of the Company Stock owned by such Stockholders, his removal for any reason (with or without Cause (as set forth in Section 2.6), notwithstanding the provisions of Section 2.6). Except for any action taken in accordance with the previous sentence of this Section 2.4 or with respect to the removal of a director for Cause, each Stockholder further agrees to take no action, whether by voting of shares of Common Stock or otherwise, with respect to the removal of any director that was not designated by such Stockholder pursuant to Section 2.2 hereof. 2.5 Calling Special Meetings for the Enforcement of Corporate ---------------------------------------------------------- Governance Provisions. In order to effectuate the provisions of this Article - --------------------- II, each Stockholder hereby agrees that when any action or vote is required to be taken by such Stockholder pursuant to this Agreement, such Stockholder shall use its best efforts to call, or cause the appropriate officers and directors of the Company to call, a special or annual meeting of stockholders of the Company, as the case may be, or execute or cause to be executed a consent in writing in lieu of any such meetings to effectuate such stockholder action. 2.6 Removal for Cause. Each Stockholder hereby agrees that, subject ----------------- to the requirements of appli- 19 cable law and the Certificate, no director shall be removed without Cause (except as provided in Section 2.4 hereof). For the purposes of Section 2.4 and this Section 2.6, "Cause" shall mean the commission of an act of fraud or embezzlement against the Company or any of its subsidiaries or any conviction or guilty plea for a felony (or a plea of nolo contendere thereto). ---- ---------- 2.7 Grant of Proxies. In order to effectuate the provisions of this ---------------- Article II and in addition to and not in lieu of Sections 2.1 through 2.6 hereof, (i) the Windward Agent hereby grants to Mr. Gary L. Swenson, or if Mr. Swenson shall cease to be a managing director, officer, director, affiliate or associate (as such terms are defined in the rules and regulations under the Exchange Act) of the Windward Agent or of any member of the Windward Agent or any of its affiliates or associates, to his successor, who shall be a managing director, officer, director, affiliate or associate of the Windward Agent or of any member of the Windward Agent or any of its affiliates or associates and shall be selected by the Windward Agent, and (ii) the Management Stockholders hereby grant to Andrew Goldfarb, or if Andrew Goldfarb shall cease to be Chief Executive Officer of the Company, to a person who is an officer and stockholder of the Company and who is selected by the Management Stockholders, a proxy to vote at any annual or special meeting of stockholders, or to take action by written consent in lieu of such meeting with respect to, all of the shares of Company Stock owned or held of record by such Stockholder solely for (x) the election of directors designated in accordance with Section 2.2 hereof, (y) the removal of directors in accordance with Sections 2.4 and 2.5 hereof, and (z) the election of a director to fill any vacancy on the Board in accordance with Section 2.3 hereof. The proxies granted pursuant to this Section 2.7 shall terminate on the ten-year anniversary of the date hereof, unless terminated prior to such date. 2.8 Voting Agreement. Each Stockholder who is a member of the ---------------- Windward Group, subject to such Stockholder's receiving full disclosure of all material facts relating thereto, shall vote its shares of Company Stock (to the extent then entitled to vote) at any regular or special meeting called for the purposes of approving the arrangements, plans or bonuses contemplated by the Stock Purchase Agreement in effect on the date hereof or to be 20 paid hereafter to the extent approval is contemplated by (or in accordance with) Section 280G(b)(5)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), or in any written consent executed in lieu of any such meeting of Stockholders, and shall take all actions necessary, to ensure the approval of such proposal. ARTICLE III RESTRICTIONS ON TRANSFER; RIGHTS OF FIRST REFUSAL 3.1 Restrictions on Transfer. ------------------------ (a) No Company Stock now or hereafter owned by any Stockholder or any interest therein may be Transferred prior to the expiration of the third anniversary of the date hereof (the "Restricted Period"), except (i) for the sale by the Windward Group to a Third Party of all (subject to any percentage reduction arising as a result of the exercise of any "tag-along" rights pursuant to Article IV hereof) of its equity interests in the Company, (ii) for any sale of shares in connection with the exercise by the Windward Group of its rights under Sections 5.1 through 5.6 hereof, (iii) upon the exercise by the Company (or its designee) of any "call" rights or any Management Stockholder of its "put" rights provided for in Article VII hereof or (iv) Transfers to or from a Permitted Transferee. Notwithstanding the foregoing, in no event shall any Stockholder transfer any Company Stock prior to April 15, 1997. (b) After the Restricted Period, no Company Stock now or hereafter owned by any Stockholder or any interest therein may be Transferred, except (i) pursuant to any Transfer which complies with the provisions of Articles III or IV hereof (provided that during the period in which any Management Stockholder and its Permitted Transferees are subject to the "put" and "call" provisions of Article VII hereof (including, without limitation, any period following any termination of the Management Stockholder's employment with the Company and its subsidiaries up until the expiration of the Company's put and call periods set forth in Sections 7.1 and 7.3 hereof), no such Management Stockholder and its Permitted Transferees shall be permitted to Transfer any shares of 21 Company Stock pursuant to either the provisions of Article III hereof or the "tag-along" provisions of Article IV hereof, except for Transfers to the Permitted Transferees of such Management Stockholder), (ii) pursuant to any Registration contemplated in connection with the provisions of Article IX hereof (provided that, prior to an IPO Event, no Management Stockholder and its Permitted Transferees shall be permitted to Transfer any shares of Company Stock pursuant to the provisions of Article IX hereof), (iii) for the sale by the Windward Group to a Third Party of all (subject to any percentage reduction arising as a result of the exercise of any "tag-along" rights pursuant to Article IV hereof) of its equity interests in the Company, (iv) for any sale of shares in connection with the exercise by the Windward Group of its rights under Sections 5.1 through 5.6 hereof, (v) upon the exercise by the Company (or its designee) of any "call" rights or any Management Stockholder of its "put" rights provided for in Article VII hereof or (vi) Transfers to or from a Permitted Transferee. (c) Any Transfer of Company Stock made pursuant to this Section 3.1 to a Permitted Transferee shall be effective only if such Permitted Transferee shall agree in writing to be bound by the terms and conditions of this Agreement pursuant to the provisions of Article X hereof. No Transfer of Company Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such Transfer shall be void and of no effect. 3.2 Rights of First Refusal Generally. --------------------------------- (a) Subject to the restrictions of Section 3.1 hereof and the limitations of Section 3.7 hereof, and prior to the application of any of the provisions of Article IV hereof, if, at any time during the term of this Agreement, any Stockholder (the "Offering Stockholder") receives a bona fide ---- ---- offer which such Stockholder wishes to accept (a "Transfer Offer") from any Third Party (the "Offeror") to purchase Company Stock (the "Transfer Stock") then owned by such Stockholder, the Offering Stockholder shall cause the Transfer Offer to be reduced to writing and shall provide a written notice (the "Right of First Refusal Notice") of such Transfer Offer to the Company, and the Company shall provide 22 written notice of such Transfer Offer to each of the other Stockholders (the "Stockholder Offerees" and, together with the Company, the "Transfer Offerees") in the manner set forth in Section 14.7 hereof. The Right of First Refusal Notice shall also contain an irrevocable offer to sell the Transfer Stock to the Transfer Offerees (in the manner set forth below) at the same price and upon substantially the same terms and conditions as the terms and conditions contained in the Transfer Offer and shall be accompanied by a true and correct copy of the Transfer Offer (which shall identify the Offeror, the Transfer Stock, the price contained in the Transfer Offer and all the other terms and conditions of the Transfer Offer); provided that (x) the Right of First Refusal -------- Notice may be combined with a Tag-Along Notice, (y) any such combined Tag-Along Notice/Right of First Refusal Notice may state that in the event that the offer(s) to sell the Transfer Stock to the Transfer Offerees are not accepted in full in accordance with this Section 3.2, then such notice shall constitute an offer with respect to Tag-Along Stock in accordance with Section 4.1 hereof and (z) references herein to a Right of First Refusal Notice shall be deemed to include any such combined Tag-Along Notice/Right of First Refusal Notice. (b) The Transfer Offerees shall have the right and option, within 30 days after the date the Right of First Refusal Notice is received by such Transfer Offerees, to accept irrevocably such offer (subject to the priorities and pro rata adjustments set forth in Sections 3.3 and 3.4 below), in the aggregate, as to all, but not less than all (unless otherwise consented to by the relevant Offering Stockholders and Offerors), shares of Transfer Stock. Each Transfer Offeree which desires to exercise such option shall provide the Offering Stockholder with written notice (specifying the number of shares of the Transfer Stock as to which each Transfer Offeree is accepting the offer) within such 30 day period. Unless the relevant Offering Stockholders and Offerors shall have otherwise consented to the purchase of less than all of the shares of Transfer Stock, no Transfer Offeree shall have the right to acquire such shares of Transfer Stock unless all such shares are being acquired by Transfer Offerees pursuant to the provisions of this Article III. 23 (c) Notwithstanding anything to the contrary contained in this Article III, there shall be no liability on the part of the Offering Stockholder to any Stockholder in the event that the sale of Transfer Stock contemplated pursuant to this Article III is not consummated for any reason whatsoever. Whether a sale of Transfer Stock contemplated pursuant to this Article III is effected by the Offering Stockholder is in the sole and absolute discretion of the Offering Stockholder. 3.3 Apportionment of Shares Among Stockholders in the Event of Over- --------------------------------------------------------------- Subscription. - ------------ (a) If the aggregate number of shares of Transfer Stock as to which notices of acceptance are provided by all Transfer Offerees exceeds the number of shares of Transfer Stock, the right to purchase the Transfer Stock shall be allocated (i) first, to the Stockholder Offerees and (ii) second, to the Company with respect to any shares of Transfer Stock as to which notices of acceptance have not been provided by the Stockholder Offerees. (b) Notwithstanding the provisions of paragraph (a) above, if the aggregate number of shares of Transfer Stock as to which notices of acceptance are provided by the Stockholder Offerees exceeds the number of shares of Transfer Stock, then (i) each Stockholder Offeree which provided a notice of acceptance shall first be allocated the lesser of (A) the number of shares of Transfer Stock which such Stockholder Offeree agreed to purchase and (B) the number of shares of Transfer Stock as is equal to the full number of shares of Transfer Stock offered in the Right of First Refusal Notice multiplied by a fraction, (1) the numerator of which shall be the number of shares of Common Stock held or deemed to be held by such Stockholder Offeree as of the date of the Right of First Refusal Notice (for the purpose of such calculation, a Stockholder Offeree shall be deemed to hold the number of shares of Common Stock which would be issuable, as of the date of the Right of First Refusal Notice, to such Stockholder Offeree upon conversion, exercise or exchange of all securities then held by such Stockholder Offeree that are then convertible, exercisable or exchangeable (but excluding any unvested options) into or for (whether directly or indirectly) shares of Common Stock) and (2) the denominator of which shall be 24 the aggregate number of shares of Common Stock (calculated as aforesaid) held or deemed to be held on such date by all Stockholder Offerees who accepted the offer contained in the Right of First Refusal Notice, and (ii) the balance of the shares of Transfer Stock (if any) offered shall be reallocated among the Stockholder Offerees accepting the offer contained in the Right of First Refusal Notice in the same proportion as set forth in the preceding clause (i)(B) (provided that no Stockholder Offeree shall be obligated to purchase more than the number of shares of Transfer Stock which such Stock holder Offeree initially agreed to purchase) in continuous reallocations until all such remaining shares have been reallocated fully among such Stockholder Offerees; provided that all -------- allocations referred to herein shall be determined in good faith by the Company in accordance with the provisions of this Section 3.3 and any share amounts so determined shall be rounded to avoid fractional shares. 3.4 Apportionment of Shares Among Stockholders in the Event of ---------------------------------------------------------- Failure to Purchase. If any shares of Transfer Stock are not purchased by a - ------------------- Stockholder Offeree who or which previously delivered a written notice of acceptance relating thereto (collectively, the "Transfer Default Stock"), such shares of Transfer Default Stock may be purchased by the other Stockholder Offerees purchasing Transfer Stock (the "Default Offerees"), allocated among such Default Offerees in proportion to the number of shares of Transfer Stock otherwise being purchased by those of such Default Offerees who agree to purchase Transfer Default Stock; provided that, if the Default Offerees do not -------- purchase all the Transfer Default Stock, the Company may purchase the remaining Transfer Default Stock; provided further that the provisions of this Section 3.4 -------- ------- shall not excuse the failure by any such Stockholder Offeree to purchase the shares of Transfer Default Stock with respect to which it previously delivered a written notice of acceptance relating thereto; provided further that all -------- ------- allocations referred to herein shall be determined in good faith by the Company in accordance with the provisions of this Section 3.4 and any share amounts so determined shall be rounded to avoid fractional shares. The provisions of the last sentence of Section 3.2(b) shall apply if the Default Offerees and the Company do not in the aggregate purchase all of the Transfer Default Stock. 25 3.5 Transfer Mechanics. The closing of the purchase of the Transfer ------------------ Stock by the Transfer Offerees who have exercised the option pursuant to Section 3.2 hereof shall take place at the principal executive offices of the Company on the 45th Business Day after the expiration of the 30-day period after the giving of the Right of First Refusal Notice (or such other date as may be mutually agreed to by the parties to such transaction). At such closing, each Transfer Offeree shall deliver to the Offering Stockholder the appropriate per share consideration (which, in the event that the Transfer Offer set forth in the Right of First Refusal Notice contemplated the payment by the Offeror of non-cash consideration, shall be paid in cash in an amount equal to the fair market value of such non-cash consideration, as determined in accordance with the provisions of the last sentence of this Section 3.5) pursuant to a bank, cashier's or certified check or by wire transfer of immediately available funds (unless otherwise specified in the Right of First Refusal Notice provided to the Transfer Offerees), against delivery of certificates representing the Transfer Stock so purchased Duly Endorsed. For purposes of this Section 3.5, the value of non-cash consideration shall be the fair market value of the aggregate consideration (whether such consideration is in the form of cash, securities, other assets or the assumption of liabilities, or any combination thereof) to be paid (without assigning any value to the non-economic terms of the particular transaction (e.g., representations, warranties, covenants, conditions, ---- indemnification, etc. or the tax treatment of the particular transaction), as determined by the Windward Agent in its reasonable discretion. Any transfer (other than to a Third Party) pursuant to this Article III shall be made without any representations, warranties, covenants or indemnities; except, that, each transferor shall be deemed to have represented that (i) the transfer has been duly authorized by it, (ii) that it has the capacity, power and authority to transfer such shares and (iii) that the acquiror shall obtain good title to such shares, free and clear of any defects, encumbrances and adverse interests (other than as provided for in this Agreement). 3.6 Transfers to Third Parties after Stockholders Decline Rights of ---------------------------------------------------------------- First Refusal. If at the end of the 30-day period following the giving of the - ------------- Right of First Refusal Notice, the Transfer Offerees (including, 26 without limitation, the Company) shall not have collectively accepted the offer contained in such notice as to all shares of Transfer Stock covered thereby (unless otherwise consented to by the relevant Offering Stockholders and Offerors), the Offering Stockholder shall have 60 days in which to sell the Transfer Stock to the Offeror, at a price not less than that contained in the Right of First Refusal Notice and on terms and conditions not more favorable to the Offeror than were contained in the Right of First Refusal Notice. No sale may be made to any Offeror unless such Offeror agrees in writing to be bound by the terms and conditions of this Agreement pursuant to the provisions of Article X hereof. Promptly after any sale pursuant to this Section 3.6, the Offering Stockholder shall notify the Company of the consummation thereof and shall furnish such evidence of the completion (including time of completion) of such sale and of the terms and conditions thereof as the Company may reasonably request. If, at the end of such 60 day period, the Offering Stockholder has not completed the sale of the Transfer Stock, such Stockholder shall no longer be permitted to sell such shares pursuant to this Section 3.6 without again fully complying with the provisions of this Article III and all the restrictions on Transfer contained in this Agreement shall again be in effect with respect to all such person's shares of Company Stock, including the Transfer Stock. 3.7 Exceptions to Rights of First Refusal. The provisions of this ------------------------------------- Article III shall not be applicable to any Transfer of Company Stock (a) from any Stockholder to any Permitted Transferee, or from any Permitted Transferee of such Stockholder to such Stockholder, provided that in any Transfer to a Permitted Transferee such Permitted Transferee (other than the Company) must agree in writing to be bound by the terms and conditions of this Agreement pursuant to the provisions of Article X hereof, (b) made pursuant to a public offering of Company Stock in connection with the exercise by any Stockholder of its rights pursuant to Article IX hereof or in connection with the exercise by the Windward Agent of its rights pursuant to Section 5.6 hereof, (c) made in connection with the exercise by the Windward Group of a Compelled Sale Right, (d) by any Tag-Along Offeree pursuant to Article IV hereof (provided that the rights of Tag-Along Offerees pursuant to Article IV hereof shall only apply after application of the provisions of this Article 27 III), or (e) between the Company (or its designee), on the one hand, and any Management Stockholder or employee of the Company and its subsidiaries, on the other, pursuant to Articles VII or X hereof. ARTICLE IV TAG-ALONG RIGHTS 4.1 Tag-Along Rights Generally. -------------------------- (a) Subject to the restrictions on Transfer set forth in Section 3.1 hereof, and subject to the prior application of the right of first refusal provisions of Sections 3.2 through 3.7 hereof, any Stockholder or Stockholders may, individually or collectively, in any one transaction or any series of similar transactions, Transfer any shares of Company Stock to any Third Party, but only if the Stockholder or Stockholders desiring to so transfer their Company Stock (collectively, the "Transferor") first offer to each of the other Stockholders (the "Tag-Along Offerees") to include, at the option of each Tag- Along Offeree, in the sale or other disposition to the Third Party, such number of shares of Company Stock (collectively, the "Tag-Along Stock") as shall be determined in accordance with this Article IV. (b) Upon the receipt by any Transferor or Transferors of a bona fide ---- ---- offer or offers to purchase or otherwise acquire shares of its or their Company Stock from a Third Party (other than a Transfer which pursuant to Section 4.5 hereof would not be subject to the provisions of Sections 4.1 through 4.4 hereof) which such Transferor or Transferors desire to accept, such Transferors shall cause the Third Party's offer to be reduced to writing and shall provide a copy of such written notice of such Third Party's offer (the "Tag-Along Notice") to the Company, and the Company shall provide a copy of the Tag-Along Notice to each of the Tag-Along Offerees in the manner set forth in Section 14.7 hereof. The Tag-Along Notice must contain an offer to purchase or otherwise acquire shares of Tag-Along Stock from the Tag-Along Offerees according to the terms and conditions of this Article IV and upon substantially the same terms and conditions as the terms and conditions contained in the Third Party's offer and shall be accompanied by a true 28 and correct copy of the Third Party's offer; provided that (x) the Tag-Along -------- Notice may be combined with a Right of First Refusal Notice, (y) the offer by a Third Party with respect to Tag-Along Stock set forth in any such combined Tag- Along Notice/Right of First Refusal Notice may be conditioned on the offer(s) with respect to the purchase in accordance with Article IV of the Transfer Stock set forth therein not being accepted and (z) references herein to a Tag- Along Notice shall be deemed to include any such combined Tag-Along Notice/Right of First Refusal Notice. (c) At any time within 10 Business Days after its receipt of the Tag- Along Notice (or 30 days after its receipt of a combined Tag-Along Notice/Right of First Refusal Notice), each of the Tag-Along Offerees may irrevocably accept the Third Party offer included in the Tag-Along Notice for up to such number of shares of Tag-Along Stock as is determined in accordance with the provisions of this Article IV by furnishing written notice of such acceptance to the Transferor and such Third Party; such written notice of acceptance must be accompanied by the certificate or certificates representing the shares of Tag- Along Stock (which shall be free and clear of liens), Duly Endorsed, to be sold or otherwise disposed of pursuant to such offer by such Tag-Along Offeree, together with a limited power-of-attorney authorizing the Transferor to sell or otherwise dispose of such shares of stock pursuant to the terms and conditions of such Third Party's offer and the terms and conditions of this Article IV. (d) Notwithstanding anything to the contrary contained in this Article IV, there shall be no liability on the part of the Transferor to any Stockholder in the event that the sale of Company Stock to the Third Party contemplated pursuant to this Article IV is not consummated for any reason whatsoever. Whether a sale of Company Stock to the Third Party contemplated pursuant to this Article IV is effected is in the sole and absolute discretion of the Transferor. 4.2 Allocation of Shares of Tag-Along Stock. Each Tag-Along Offeree --------------------------------------- shall have the right to sell pursuant to the Third Party's offer a number of shares of Tag-Along Stock up to the product of (x) the total number of shares to be acquired by the Third Party as set forth 29 in the Tag-Along Notice (or such higher number of shares as such Third Party may agree to), times (y) a fraction, the numerator of which shall be the number of shares of Common Stock held or deemed to be held by such Tag-Along Offeree as of the date of the Tag-Along Notice (for the purpose of such calculation, a Tag- Along Offeree shall be deemed to hold the number of shares of Common Stock which would be issuable, as of the date of the Tag-Along Notice, to such Tag-Along Offeree upon conversion, exercise or exchange of all securities then held by such Tag-Along Offeree that are then convertible, exercisable or exchangeable (but excluding any unvested options) into or for (whether directly or indirectly) shares of Common Stock) and (2) the denominator of which shall be the aggregate number of shares of Common Stock (calculated as aforesaid) held or deemed to be held on such date by all Stockholders; provided that all -------- allocations referred to herein shall be determined in good faith by the Company in accordance with the provisions of this Section 4.2 and any share amounts so determined shall be rounded to avoid fractional shares. 4.3 Transfer Mechanics. The purchase from the Tag-Along Offerees ------------------ pursuant to this Article IV shall be on the same terms and conditions, including any representations, warranties, covenants and indemnities and the per share price (which, in the event of cash consideration, shall be paid by bank, cashier's or certified check or by wire transfer of immediately available funds, unless otherwise specified in the Tag-Along Notice provided to the Tag-Along Offerees by the Company) and the date of sale or other disposition, as are received by the Transferor and stated in the Tag-Along Notice provided to the Tag-Along Offerees by the Company. As promptly as practicable (but in no event later than 5 days) after the consummation of the sale or other disposition of Company Stock of the Transferor and Tag-Along Stock of the Tag-Along Offerees to the Third Party pursuant to the Third Party's offer, the Transferor shall notify the Tag-Along Offerees thereof, shall remit to each Tag-Along Offeree who accepted the Third Party's offer in accordance with the provisions of this Article IV the total sales price of the shares of Tag-Along Stock of such Tag- Along Offeree sold or otherwise disposed of pursuant thereto (together with any excess shares of Tag-Along Stock of such Tag-Along Offeree which are not sold or otherwise disposed of pursuant thereto), and shall furnish such other 30 evidence of the completion and time of completion of such sale or other disposition and the terms and conditions thereof as may be reasonably requested by the Tag-Along Offerees. 4.4 Transfers to Third Parties after Stockholders Decline Tag-Along ---------------------------------------------------------------- Rights. If within 10 Business Days after the receipt of the Tag-Along Notice - ------ (or 30 days after its receipt of a combined Tag-Along Notice/Right of First Refusal Notice), any Tag-Along Offeree has not accepted the offer contained in the Tag-Along Notice, such Tag-Along Offeree will be deemed to have waived any and all rights with respect to the sale or other disposition of Tag-Along Stock described in the Tag-Along Notice and the Transferor shall have 60 days in which to sell or otherwise dispose of the shares of Company Stock described in the Third Party's offer, on terms and conditions not more favorable to the Transferor than were set forth in the Tag-Along Notice. If, at the end of 60 days following the receipt of the Tag-Along Notice, the Transferor has not completed the sale or other disposition of Company Stock of the Transferor and Tag-Along Stock of any Tag-Along Offeree in accordance with the terms and conditions of the Third Party's offer, the Transferor shall return to such Tag- Along Offeree all certificates representing shares of Tag-Along Stock which such Tag-Along Offeree delivered for sale or other disposition pursuant to this Article IV, and all the restrictions on Transfer contained in this Agreement with respect to Company Stock owned by the Transferor shall again be in effect. 4.5 Exceptions to Tag-Along Rights. The provisions of this Article ------------------------------ IV shall not be applicable to any Transfer of Company Stock (a) from any Stockholder to any Permitted Transferee, or from any Permitted Transferee of such Stockholder to such Stockholder, provided that in any Transfer to a Permitted Transferee such Permitted Transferee (other than the Company) must agree in writing to be bound by the terms and conditions of this Agreement pursuant to the provisions of Article X hereof, (b) made pursuant to a public offering of Company Stock in connection with the exercise by any Stockholder of its rights pursuant to Article IX hereof or in connection with the exercise by the Windward Group of its rights pursuant to Section 5.6 hereof, (c) made in connection with the exercise by the Windward Group of a Compelled Sale Right 31 or (d) between the Company (or its designee), on the one hand, and any Management Stockholder or employee of the Company and its subsidiaries, on the other, pursuant to Articles VII or X hereof. ARTICLE V RIGHTS TO COMPEL SALE OR IPO EVENT 5.1 Rights to Compel Sale Generally. The Windward Group shall have ------------------------------- the right (the "Compelled Sale Right") to cause the sale of all or substantially all of the Company to a Third Party (the "Third Party Purchaser"), whether pursuant to a sale of Company Stock, merger, consolidation, stock swap, business combination, sale of assets or similar transaction (any such sale, the "Compelled Sale"); provided that the Windward Group gets treated no more -------- favorably as to the terms and conditions of the Compelled Sale than the other Stockholders (other than with respect to any transaction fee arrangements entered into by the Company and Windward (or any of its Affiliates) in connection with a Compelled Sale which such transaction fee arrangements, in the case of any Compelled Sale, shall be subject to the approval of a majority of the directors of the Company who are not Windward Nominees). If the Windward Group proposes to exercise its Compelled Sale Right, the Windward Agent shall send written notice of the exercise of its Compelled Sale Right to each of the remaining Stockholders, setting forth the consideration to be paid by the Third Party Purchaser and the other terms and conditions of such transaction (such notice, the "Compelled Sale Notice"). 5.2 Compelled Sale Pursuant to a Sale of Company Stock. -------------------------------------------------- (a) In the event that the Windward Group determines to exercise its Compelled Sale Right pursuant to a sale of Company Stock to the Third Party Purchaser, then the Windward Agent may, at its option, require the remaining Stockholders and their respective Permitted Transferees to sell all Company Stock (along with all rights to acquire Company Stock and similar interests) held by them to the Third Party Purchaser for the same consideration per share (appropriately adjusted in the 32 case of securities such as options and warrants) and otherwise on the same terms and conditions upon which the Windward Group sells its shares of Company Stock (along with all rights to acquire Company Stock and similar interests). Within 10 days following the date on which the Windward Agent delivers the Compelled Sale Notice, each of the remaining Stockholders shall deliver to a representative of the Windward Agent designated in the Compelled Sale Notice, certificates representing all shares of Company Stock (along with all rights to acquire Company Stock and similar interests) held by such Stockholder, Duly Endorsed, together with all other documents required to be executed in connection with such transaction; provided that in the event that the Windward -------- Group does not anticipate consummating such Compelled Sale within 30 days after the date of delivery of the Compelled Sale Notice, the Windward Group shall subsequently notify the remaining Stockholders of the anticipated date of consummation of such Compelled Sale and such remaining Stockholders shall thereupon deliver to such designated representative of the Windward Agent, within 5 days prior to such anticipated date of consummation, such certificates and documents. (b) In the event that a remaining Stockholder and its Permitted Transferees should fail to deliver such certificates and documents to the Windward Agent, then (i) the Company shall cause the books and records of the Company to show that such shares are bound by the provisions of this Article V and that such shares may be transferred only to the Third Party Purchaser and (ii) such remaining Stockholder and each of its Permitted Transferees (A) shall not be entitled to the consideration it is to receive under this Section 5.2 until it cures such failure (provided that after curing such failure it shall be so entitled to such consideration without interest), (B) shall for all purposes be deemed no longer to be a stockholder of the Company and have no voting rights with respect to such shares of Company Stock, (C) shall not be entitled to any dividends or other distributions with respect to the shares of Company Stock held by it, (D) shall have no other rights or privileges granted to stockholders under this or any other agreement and (E) in the event of liquidation of the Company, shall have rights subordinate to the rights of any equity holder with respect to any consideration it would have received if it had complied with this Section 33 5.2, if any, until it cures such failure (provided, that after curing such failure it shall be so entitled to such consideration without interest). If any party so fails to deliver such certificates and documents as so required it shall execute, acknowledge and deliver all such further agreements and take all such further actions as may be reasonably necessary or desirable to give effect to the provisions of this Section 5.2. (c) If, within one year after the Windward Agent gives such notice, the Windward Group has not completed the sale of all the shares of Company Stock (along with all rights to acquire Company Stock and similar interests) of the Stockholders in accordance herewith, the Windward Agent shall return to each of the remaining Stockholders all certificates representing shares of Company Stock that such Stockholder delivered for sale pursuant hereto and that were not purchased pursuant to this Article V. (d) Stockholders who deliver to the Windward Agent certificates representing shares of Company Stock in accordance with this Section 5.2 or otherwise pursuant to a Compelled Sale shall retain full voting control (to the extent such shares are entitled to vote) and any other rights and incidents of ownership associated with such Stockholder's ownership of such shares until the applicable Compelled Sale has been completed or such shares have been returned in accordance with the provisions of this Article V and such shares will be held by the Windward Agent for the benefit of such Stockholder until such time. 5.3 Compelled Sale Other Than Pursuant to a Sale of Company Stock. ------------------------------------------------------------- In the event that the Windward Group determines to exercise its Compelled Sale Right pursuant to a merger, consolidation, stock swap, business combination, sale of assets or similar transaction, then the Windward Agent may, at its option, require the remaining Stockholders and their respective Permitted Transferees to vote in favor of such transaction. In particular, in the event of any such proposed transaction, upon any request by the Windward Agent, each of the Stockholders shall use its respective best efforts (i) to call, or cause the appropriate officers and directors of the Company to call, a special meeting of stockholders of the Company to consider approval of such proposed trans- 34 action, and (ii) vote in favor of such proposed transaction all of the shares of Company Stock owned or held of record by such Stockholder (to the extent entitled to vote), at each regular or special meeting of the stockholders of the Company called for the purpose of voting on such matter, or in any written consent executed in lieu of such a meeting of stockholders, and shall take all actions reasonably necessary, to ensure that all necessary stockholder approvals for such transaction are obtained. 5.4 Cooperation in Connection with Compelled Sale. Each Stockholder --------------------------------------------- shall cooperate with the Windward Agent and the other members of the Windward Group in the event that the Windward Group determines to exercise its Compelled Sale Right pursuant to this Article V and shall take all necessary and appropriate actions in connection with any such Compelled Sale as may be reasonably requested by the Windward Agent (including, without limitation, entering into such agreements and instruments in connection with any such Compelled Sale as may be requested by the Windward Agent (subject to the provisions of the next sentence)). Without limitation to the foregoing provisions, each Stockholder hereby covenants and agrees that, at the request of the Windward Agent, it will promptly enter into any agreements and instruments (which may include such representations, warranties, covenants and indemnities as may be negotiated by the Windward Agent) with a Third Party Purchaser relating to any Compelled Sale that is negotiated by the Windward Agent; provided, however, that, unless the Stockholders shall otherwise agree, all such - -------- representations, warranties and indemnities shall be several and not joint as among the Stockholders. 5.5 Notice of Consummation of Compelled Sale. Promptly (but in no ---------------------------------------- event later than 2 Business Days) after the consummation of any sale transaction contemplated pursuant to Section 5.1 hereof, the Windward Agent shall give notice thereof to the remaining Stockholders, shall remit to each of the remaining Stockholders the total transaction proceeds to which such Stockholders are entitled pursuant thereto, and shall furnish such other evidence of the completion and time of completion of such sale or other disposition and the terms and conditions thereof as may be reasonably requested by such Stockholders. 35 5.6 Rights to Compel IPO Event. -------------------------- (a) The Windward Agent may, on behalf of the Windward Group, at any time, in its sole discretion, cause the Company to effect an IPO Event (which may include, at the Windward Agent's option, the secondary sale of shares of Company Stock then held by the Windward Group); provided that the Windward -------- Group's election to include any of its shares of Company Stock in such public offering shall entitle the Management Stockholders to participate in accordance with (and subject to the restrictions applicable to) the "piggyback" registration rights provisions of Article 9 hereof. (b) In the event that the Windward Agent, on behalf of the Windward Group, elects to exercise its rights pursuant to Section 5.6(a) above, the Windward Agent shall have the right to designate all of the material terms of such IPO Event (e.g., the underwriters, if any, to be retained by the Company in ---- connection therewith, the securities exchanges or national market systems, if any, where the Company's equity would be listed for trading, the price, timing and other terms of the proposed public offering, etc.). In addition, in the event that the Windward Agent elects to exercise the rights of the Windward Group contemplated pursuant to Section 5.6(a) above, then the Windward Agent may, at its option, require the remaining Stockholders and their respective Permitted Transferees to vote in favor of any amendment(s) to the Certificate and By-Laws which are reasonably requested by any underwriter retained in connection with such IPO Event. In particular, in the event of any such proposed IPO Event, upon any request by the Windward Agent, each of the Stockholders shall use its respective best efforts (i) to call, or cause the appropriate officers and directors of the Company to call, a special meeting of stockholders of the Company to consider approval of such proposed amendment(s), and (ii) vote in favor of such proposed amendment(s) all of the shares of Company Stock owned or held of record by such Stockholder (to the extent entitled to vote), at each regular or special meeting of the stockholders of the Company called for the purpose of voting on such matter, or in any written consent executed in lieu of such a meeting of stockholders, and shall take all actions reasonably necessary, to ensure that all necessary stock- 36 holder approvals for such amendment(s) and such IPO Event are obtained. ARTICLE VI PREEMPTIVE RIGHTS 6.1 Preemptive Rights. ----------------- (a) The Company hereby grants to each Stockholder who is a member of the Windward Group or a Management Stockholder (and their respective Permitted Transferees) (each, a "Preempting Stockholder") a right of first refusal to purchase, with respect to the issuance by the Company of new or additional equity securities for cash, that portion of such new or additional equity securities as may be necessary in order to permit such Stockholder to maintain their relative ownership of the aggregate amount of the Company's total common equity (calculated on a Fully-Diluted Basis). Such right of first refusal would be offered to each Preempting Stockholder (such offer, the "Preemptive Rights Offer") pursuant to a written notice from the Company offering each Preempting Stockholder such securities on the same terms and conditions as offered to the other offeree(s) (such written notice, the "Preemptive Rights Notice"). Each Preempting Stockholder would have 15 days from the date of the Company's delivery of the Preemptive Rights Notice to notify the Company in writing of its binding acceptance of such Preemptive Rights Offer with respect to all (but not less than all) equity securities which are offered to such Preempting Stockholder pursuant to such Preemptive Rights Offer. (b) If a Preempting Stockholder accepts the Preemptive Rights Offer in accordance with the provisions of the preceding sentence, the Company and any such accepting party shall have 30 days in which to consummate such binding agreement. In the event that a Preempting Stockholder does not accept the Preemptive Rights Offer within such 15-day period in accordance with the provisions of the preceding sentence or fails to consummate any such purchase within such 30-day period, the Company would have the right, subject to the provisions of Section 12.1(f) but not the obligation to issue such securities on terms and conditions in the aggregate no more favorable to the other offeree(s) than those set forth in 37 the Preemptive Rights Notice, pursuant to a definitive agreement to be entered into no later than 120 days after such date. (c) Notwithstanding anything to the contrary contained herein, no rights of first refusal pursuant to Section 6.1(a) above would apply in the event of (i) any issuances or grants of equity securities to the officers, directors or employees of the Company or any of its subsidiaries, (ii) the exercise of any employee or director options or the exercise or conversion of any options, warrants or convertible securities in existence as of the date of the Closing or issued pursuant to or in connection with the Stock Purchase Agreement, or the issuance of any securities to the employees or directors of the Company or its subsidiaries pursuant to any restricted stock or other incentive plan of the Company or any of its subsidiaries or the issuance upon the conversion or exercise of convertible securities or warrants the issuance of which was subject to this Article VI, (iii) the issuance of equity securities, either directly or indirectly, in connection with the acquisition, strategic business combination or investment by the Company in any party which is not prior to such transaction an Affiliate of either the Company or any of the Stockholders (whether by merger, consolidation, stock swap, sale of assets or securities, or otherwise), (iv) the issuance of securities (including any convertible securities or options and the conversion or exercise thereof) to any third party which is at such time a creditor of the Company, in connection with the refinancing or restructuring of the indebtedness owed to such third party, (v) an issuance of securities by the Company in connection with an IPO Event or any other Registration, (vi) an issuance of securities by the Company in connection with any Compelled Sale Right, (vii) the distribution by the Company of its securities to all of its stockholders on a pro rata basis or (viii) any --- ---- issuance of securities by the Company pursuant to the Stock Purchase Agreement. Notwithstanding anything to the contrary herein, for as long as the Subordinated Notes remain outstanding, the Company shall not issue any shares of Common Stock to any of its directors; provided, however, that the Company may -------- ------- (i) issue shares upon the excercise of options granted to directors in accordence with the terms of the Company Stock Option Plan and (ii) issue up to 2,000 shares of Common Stock to Independent 38 Nominees and an additional 500 shares of Common Stock to a Windward/Park Nominee who is not an employee of MetLife, in each case at a purchase price per share at least equal to the price per share paid by the Windward Entities pursuant to the Stock Purchase Agreement. ARTICLE VII PUT AND CALL RIGHTS ON MANAGEMENT STOCK 7.1 Put and Call Rights. ------------------- (a) Termination Without Cause. If, prior to an IPO Event, a ------------------------- Management Stockholder's employment with the Company and its subsidiaries is terminated (x) by the Company and its subsidiaries for any reason other than Cause or other than in connection with the Retirement, Disability or death of such Management Stockholder, or (y) by reason of Voluntary Termination for Good Reason, then the Company (or its designee) shall have the right, for 120 days following the date of termination of such employment and subject in each case to the provisions of Section 7.3 hereof, upon the approval of at least 75% of the members of the Board, to purchase from such Management Stockholder and his or her Permitted Transferees, and such Management Stockholder and his or her Permitted Transferees shall be required to sell on one occasion to the Company (or its designee), all Company Stock then held by such person(s) at a price equal to 90% of the Fair Market Value; provided, however, that the Company may -------- ------- not exercise such right if payment for such shares must be made in Management Repurchase Notes (as defined in Section 7.4) in accordance with Section 7.4. (b) Termination Upon Disability, Death or Retirement. (i) Other ------------------------------------------------ than with respect to Andrew Goldfarb, if, prior to an IPO Event, a Management Stockholder's employment with the Company and its subsidiaries is terminated due to the Retirement, Disability or death of the Management Stockholder, then the Company (or its designee) shall have the right, for 120 days following the date of termination of such employment and subject in each case to the provisions of Sections 7.3 hereof, to purchase from such Management Stockholder (or the personal representatives of such deceased Management Stockholder, as the case may be) and his or her Permitted 39 Transferees, and such Management Stockholder (or the personal representatives of such deceased Management Stockholder, as the case may be) and his or her Permitted Transferees shall be required to sell on one occasion to the Company (or its designee), all Company Stock then held by such person(s) at a price equal to 85% of the Fair Market Value; provided, however, that in the event of -------- ------- such "call" (a "Management Stockholder Call Event"), if prior to 180 days after the consummation of such Management Stockholder Call Event, a Change of Control shall have occurred, the Company will pay to such Management Stockholder upon consummation of such Change of Control (x) the positive difference between (i) the price per share of Company Stock paid to Stockholders in connection with the Change of Control (based on the value of cash or property (including the retained value of any security and the present value of any right to receive payment in the future) paid to such Stockholders in the Change of Control) and (ii) the purchase price per share of Company Stock paid to the Management Stockholder in such Management Stockholder Call Event, multiplied by (y) the number of shares of Company Stock sold in such Management Stockholder Call Event. (ii) Other than with respect to Andrew Goldfarb, if, prior to an IPO Event, a Management Stockholder's employment with the Company and its subsidiaries is terminated due to the Retirement, Disability or death of the Management Stockholder, then, subject in each case to the provisions of Section 7.3 hereof, such Management Stockholder (or the personal representatives of such deceased Management Stockholder, as the case may be) and all of his or her Permitted Transferees shall have the right, for 90 days following the date of termination of such employment, to sell to the Company (or its designee), and the Company (or its designee) shall be required to purchase on one occasion from such Management Stockholder and his or her Permitted Transferees, all shares of Company Stock held by all such person(s) as a price equal to 80% of the Fair Market Value; provided, however that in the event that the Company pays such -------- purchase price in Management Repurchase Notes in accordance with the provisions of Section 7.4, the purchase price shall be equal to 90% of the Fair Market Value. (c) Voluntary Termination. If, prior to an IPO Event, a Management --------------------- Stockholder's employment with 40 the Company and its subsidiaries is terminated by reason of Voluntary Termination (other than Voluntary Termination for Good Reason), then the Company (or its designee) shall have the right, for 120 days following the date of termination of such employment and subject in each case to the provisions of Section 7.3 hereof, to purchase from such Management Stockholder and his or her Permitted Transferees, and such Management Stockholder and his or her Permitted Transferees shall be required to sell on one occasion to the Company (or its designee), all Company Stock then held by such person(s) at a price equal to 85% of the Fair Market Value. For purposes of this Section 7.1(c) and Section 7.1(d), the termination of the employment of a Management Stockholder who is a party to an employment or consulting contract or agreement with the Company or its subsidiaries by reason of Voluntary Termination (other than Voluntary Termination for Good Reason) shall be deemed to be a termination for Cause and such Stockholder shall be subject to the provisions of Section 7.1(d). (d) Termination for Cause. If, prior to an IPO Event, (x) a --------------------- Management Stockholder's employment with the Company and its subsidiaries is terminated for Cause (or is deemed terminated for Cause pursuant to Section 7.1(c)) or (y) a Management Stockholder voluntarily terminates his or her employment simultaneous with or following termination for Cause or an event which if known to the Company at the time of such voluntary termination by the Management Stockholder of his or her employment would allow the Company and its subsidiaries to terminate the Management Stockholder's employment for Cause, then the Company (or its designee) shall have the right, for 120 days following the date of termination of such employment and subject in each case to the provisions of Section 7.3 hereof, to purchase from such Management Stockholder and his or her Permitted Transferees, and such Management Stockholder and his or her Permitted Transferees shall be required to sell on one occasion to the Company (or its designee), all shares of Company Stock then held by such person(s) at a price equal to the lower of cost, Book Value or 75% of the Fair Market Value. (e) Notice of Exercise; Closing. (i) If the Company (or its --------------------------- designee) desires to exercise its option to purchase shares of Company Stock pursuant to 41 its rights under this Section 7.1, the Company (or its designee) shall, not later than the expiration date of the 120-day call period referred to in clauses (a), (b)(i), (c) and (d) above (as it may be extended pursuant to the provisions of Section 7.3 hereof), send written notice of its intention to purchase all of the shares of Company Stock held by such Management Stockholder and his or her Permitted Transferees pursuant to this Section 7.1. Subject in each case to the provisions of Section 7.3 hereof, the closing of the purchase shall take place at the principal office of the Company on the tenth day following the giving of such notice or as soon thereafter as practicable but in no event later than twenty days after the giving of such notice. The purchase price shall be paid in accordance with Section 7.4 hereof. (ii) Each Management Stockholder (and the Permitted Transferees thereof) which desires to sell all of its shares of Company Stock pursuant to its rights under this Section 7.1 shall, not later than the expiration date of the 90-day put period referred to in clause (b)(ii) above, send a written, irrevocable notice of its intention to sell all of its shares of Company Stock pursuant to this Section 7.1. Subject in each case to the provisions of Section 7.3 hereof, the closing of the purchase shall take place at the principal office of the Company on the tenth day following the giving of such notice. The purchase price shall be paid in accordance with Section 7.4 hereof. 7.2 Obligation to Sell Several. In the event that any Management -------------------------- Stockholder has transferred any shares of Company Stock to any Permitted Transferees, the failure of any one member of such group to perform its obligations hereunder shall not excuse or affect the obligations of any other member thereof, and the closing of the purchases from such other members by the Company (or its designee) shall not excuse, or constitute a waiver of the Company's rights against, the defaulting member(s). 7.3 Deferral of Purchases. --------------------- (a) Events of Deferral. The Company (and its designee) shall not be ------------------ obligated to purchase any shares of Company Stock, at any time pursuant to this Article VII, regardless of whether it has in the case of 42 Section 7.1 hereof delivered a notice of its election to purchase any such shares, (x) to the extent that the purchase of such shares would give rise to or result in a Violation or (y) if immediately prior to the time of purchase there exists, or if immediately after giving effect to such purchase there would exist, a Financing Default. (b) Extension of Put and Call Periods. The period during which the --------------------------------- Company (or its designee) shall have the right or obligation to purchase shares of Company Stock pursuant to the exercise of any "put" rights pursuant to Section 7.1 (a "Put Right") or pursuant to the exercise of any right to purchase shares of Company Stock pursuant Section 7.1 hereof (a "Call Right"), shall, except with respect to the Call Right contemplated by Section 7.1, be extended in the event the Board in good faith determines that any Violation or Financing Default exists or would result as a result of any purchase of Company Stock pursuant to this Article VII until 90 days (in the event of the exercise of any Put Rights), or 120 days (in the event of the exercise of any Call Rights), as the case may be, after the Board determines that such is no longer the case; provided that, in order to exercise such rights, (i) the Management -------- Stock holder (or the personal representatives of such deceased Management Stockholder, as the case may be) exercising any Put Rights must have given notice of its intention to exercise its Put Rights within 90 days from the date the Management Stockholder's termination of employment, and (ii) the Company (or its designee) must have given notice of its intention to exercise its Call Rights within 120 days from the date of the Management Stockholder's termination of employment. 7.4 Payment for Stock. The purchase price of shares of Company Stock ----------------- to be purchased by the Company (or its designee) pursuant to this Article VII will be paid by (a) at the Company's option, the cancellation of indebtedness owing from the Management Stockholder to the Company or any of its subsidiaries, if any, and (b) then by the Company's delivery of a bank cashier's check or certified check for the remainder of the purchase price, if any, against delivery of the certificates or other instruments representing the Company Stock so purchased, Duly Endorsed; provided that, in the event (x) that the -------- Company does not have sufficient cash flow to finance the 43 payment of such purchase price referred to in clause (b) above, as determined in good faith the Board, or (y) that the Company is not permitted, pursuant to the provisions of either the Credit Agreement or the Subordinated Notes, or any refinancing, refunding or amendment thereof (after seeking in good faith to obtain from the lenders thereunder a consent reasonably acceptable to the Company with respect to effecting a cash repurchase), to pay cash in payment of such purchase price referred to in clause (b) above, but is permitted, pursuant thereto and pursuant to all other credit obligations of the Company to issue a Management Repurchase Note, then, in any of such events, the Company (or its designee) may, at its option, pay for such purchase price with the delivery of a junior, subordinated promissory note bearing interest at an eight percent (8%) annual rate of interest, due on the fifth anniversary of the date of issuance thereof (or such later date as may be required by any financing agreement to which the Company is a party) and substantially in the form attached hereto as Exhibit A for the remainder of the purchase price, if any (such promissory note, the "Management Repurchase Note"); provided further that if a Management -------- ------- Repurchase Note is issued by the Company in connection with the exercise of the "call" right pursuant to Section 7.1(c), such Management Repurchase Note shall be deemed a priority note (a "Priority Note") and the Company covenants, notwithstanding the term of the Management Repurchase Notes, to use its reasonable efforts to repay any Priority Notes as promptly thereafter as the Company's financing documents or cash flow shall reasonably, as determined by the Board, permit; provided, that, the Company shall not be bound by the -------- ---- foregoing covenant to the extent that (and for as long as) any payment of any Priority Notes would give rise to or result in a Violation. In the event that the Company (or its designee) intends to deliver a Management Repurchase Note upon the exercise of any Put Right or any Call Right, the Company (or its designee) shall notify the intended recipient thereof prior to the delivery thereof. The Company (or its designee) shall have the rights set forth in subsections (a) and (b) of the first sentence of this Section 7.4 whether or not any Permitted Transferee(s) of the Management Stockholder owing amounts to the Company or its subsidiaries, if applicable, is itself an obligor of the Company or its subsidiaries. 44 7.5 Miscellaneous. Notwithstanding anything to the contrary set ------------- forth in this Agreement, (a) the Company shall be permitted to reach any agreement with any Management Stockholder (or his estate, as the case may be) concerning the purchase of such Management Stockholder's shares of Company Stock, and (b) the Company, in its sole discretion, shall have the right, but not the obligation, to assign any of its rights, and delegate any of its obligations, to purchase any shares of Common Stock of any Management Stockholder (or his estate, as the case may be) pursuant to Article VII hereof to any employee stock ownership plan or similar compensation or benefit plan that the Company may have, or to any subsidiary or employee of the Company (or any combination of the foregoing). 7.6 Proxy and Escrow of Company Stock. --------------------------------- (a) In the event that the Company (or its designee) does not exercise its rights under Section 7.1 to purchase all shares of Company Stock held by a Management Stockholder, the Company may, at its option, require such Management Stockholder to execute and deliver to the Secretary irrevocable proxies (which proxies shall be deemed to be coupled with an interest and which shall terminate upon an IPO Event) in such form and as the Company may from time to time prescribe, in favor of such person as the Board may from time to time prescribe, entitling such person to vote such shares, if at all, on matters in direct proportion to the affirmative and negative votes and abstentions of all other voting securities then outstanding. (b) Each Management Stockholder agrees that he or she will, upon termination of such Management Stockholder's employment for any reason, or prior to termination at the request of the Company, deliver to the Secretary, to be held by the Secretary for the benefit of such Management Stockholder, the certificates representing all shares of Company Stock of such Management Stockholder. ARTICLE VIII COMPANY COVENANTS 45 8.1 Affiliated Arrangements. The Company agrees that it will not ----------------------- enter into any contractual arrangements or effect any transactions (including, without limitation, the payment of any management or transactional fees) between the Company and any of the Stockholders or their respective Affiliates, other than (a) those fee arrangements contemplated by the Letter Agreement, dated as of the date hereof, among the Company and Windward Capital Partners, L.P., (b) any transaction fee arrangements entered into by the Company and Windward or its Affiliates in connection with an IPO Event, a Compelled Sale or any other similar transaction, and (c) those which have been approved by a majority of the members of the Board that are disinterested in such transaction. 8.2 Financial Reports. The Company shall prepare and distribute to ----------------- each of the Stockholders unaudited quarterly and audited annual financial reports of the Company and its consolidated subsidiaries (including consolidated balance sheets and consolidated statements of income and cash flow) as soon as reasonably practicable after the end of the applicable financial period (but in no event later than 45 days after the end of any fiscal quarter of the Company or 90 days after the end of any fiscal year of the Company). 8.3 Access to Information. Subject to the provisions of Section 14.1 --------------------- hereof, the Company shall provide to each Stockholder access to the books and records of the Company and its subsidiaries during the regular business hours of the Company and such subsidiaries, following the Company's receipt of a written notice from such Stockholder requesting such access. 8.4 FIRPTA Activities. The Company agrees that it will not, without ----------------- first obtaining the prior written consent of the Windward Agent, take any actions that would result in the Company becoming a United States real property holding company within the meaning of section 897(c)(2) of the Code (or any successor statutory or regulatory provision of similar effect). 46 ARTICLE IX REGISTRATION RIGHTS 9.1 Demand Registration Rights. -------------------------- (a) Upon written notice from a Stockholder entitled to request Registration pursuant to Section 9.1(c) below (the "Requesting Stockholder"), the Company shall use its best efforts to effect at the earliest possible date and maintain the registration under the Securities Act of offers and sales of Common Stock by the Requesting Stockholder (and no offers and sales of any other securities by any other person shall be registered with such Common Stock of the Requesting Stockholder without the Requesting Stockholder's prior consent), its Permitted Transferees and any underwriter with respect to such stock, in accordance with the intended method or methods of disposition specified by the Requesting Stockholder (including, but not limited to, an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule) promulgated under the Securities Act); provided that if, after a Registration request -------- pursuant to this Section 9.1 has been made, the outside legal counsel of the Company has determined in good faith that the filing of a Registration request would require the disclosure of material information which the Company has a bona fide business purpose for preserving as confidential, the Company shall - ---- ---- not be obligated to effect a Registration pursuant to this Section 9.1 until the earlier of (A) the date upon which such material information is disclosed to the public or ceases to be material, or (B) 45 days after such outside legal counsel of the Company first makes such good faith determination; provided -------- further that no Requesting Stockholder may request any such Registration - ------- pursuant to this Section 9.1 (x) until at least six (6) months after the anniversary of the closing of the last Registration and sale of Company securities and (y) unless the Registrable Securities sought to be registered has a Fair Market Value of at least $2,500,000; provided, however, that the -------- ------- Requesting Stockholder shall not have the right to utilize the services of an underwriter unless the Fair Market Value of the Company Stock to be offered exceeds $20,000,000. The Requesting Stockholder(s) requesting a Registration under this Section 9.1 may, at any time prior to the effective date of the registration statement relating to 47 such Registration, revoke such request by providing written notice thereof to the Company. (b) In connection with any Registration requested pursuant to this Section 9.1, (i) the Requesting Stockholder shall have the right, subject to the penultimate sentence of Section 9.1(a), to designate the managing underwriter(s) and (ii) the Company shall take such other actions, including, without limitation, listing such shares for trading on any securities exchange or national market system and registering or qualifying such shares under state securities laws, as may be reasonably requested by the Requesting Stockholder. If the Requesting Stockholder consents to the inclusion of offers and sales of any other securities in a Registration of Common Stock by the Requesting Stockholder pursuant to this Section 9.1 and the underwriter(s) retained in connection with such Registration advise the Company in writing that such offering would be materially and adversely affected by the inclusion of such securities, the Requesting Stockholder may in its sole discretion exclude all or some of such securities from such offering. (c) After the occurrence of an IPO Event: (i) the Windward Agent, on behalf of the Windward Group, will have the right to request Registration of Company Stock of the Windward Group as a Requesting Stockholder pursuant to this Section 9.1 an aggregate of three (3) times; provided that if the Windward Group had elected, pursuant to Section 5.6 -------- hereof, to cause the Company to effect the IPO Event, such election will not be a request for Registration of Company Common Stock for purposes of this Section 9.1(c) hereof; and (ii) Andrew Goldfarb, on behalf of the Management Stockholders upon the request of holders of a majority of the shares of Common Stock held by Management Stockholders at such time, will have the right to request Registration of Company Stock of the Management Stockholders pursuant to this Section 9.1 an aggregate of two (2) times; provided, that, prior to such time -------- ---- the Windward Group shall have effected one Registration pursuant to Section 9.1(c)(i); provided, further, that in the event Andrew Goldfarb, on behalf of -------- ------- ---- the Management Stockholders, requests Registration pursuant to this Section 9.1(c)(ii), the Company shall notify the Windward Agent 48 in writing of such request and the Windward Agent may elect, in its sole discretion (the "Windward Election"), within 15 days of receipt of such written notice, to request Registration pursuant to Section 9.1(c)(i) in which case the Windward Group shall be treated as a Requesting Stockholder for purposes of such Registration and the Management Shareholders shall not be treated as Requesting Stockholders for purposes of such Registration (and such Registration request shall not be counted with respect to the Management Shareholders for purposes of the preceding sentence), however the Windward Agent shall only be allowed to make one Windward Election and after such election may no longer make a Windward Election unless the requested Registration pursuant to the Windward Election is not deemed effective (as set forth below) in which case such election shall not be deemed to be the Windward Election; provided further that any Registration requested by any Requesting Stockholder - -------- ------- pursuant to this Section 9.1 shall not be deemed to have been effected (and, therefore, not requested for purposes of this Section 9.1(c)), (i) unless it has become effective, provided that a registration which does not become effective after the Company has filed a registration statement with respect thereto solely by reason of the refusal to proceed by the Requesting Stockholder (other than a refusal to proceed based upon the advice of counsel relating to a matter with respect to the Company) shall be deemed to have been effected by the Company at the request of such Requesting Stockholder unless the Requesting Stockholder shall have elected to pay all Registration Expenses in connection with such registration, (ii) if after it has become effective such Registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason other than a misrepresentation or an omission by the Requesting Stockholder and, as a result thereof, the Common Stock requested to be registered cannot be completely distributed in accordance with the plan of distribution set forth in the related registration statement or (iii) if the closing pursuant to the purchase agreement or underwriting agreement entered into in connection with such Registration does not occur. Any Registration effected pursuant to Section 9.2 shall not be deemed to have been requested by a Requesting Stockholder for purposes of this Section 9.1(c). 49 9.2 Piggyback Registration Rights. If at any time following the ----------------------------- completion of an IPO Event the Company proposes to effect another Registration, whether or not for sale for its own account and (subject to the provisions of Section 9.1 above) whether or not pursuant to the exercise of any of the demand registration rights referred to in Section 9.1 hereof, in a manner which would permit Registration of Registrable Securities for sale to the public under the Securities Act, it will each such time, subject to the provisions of Sections 9.1 and 9.2(c) hereof, give prompt written notice to all Stockholders of record of Registrable Securities of its intention to do so and of such Stockholders' rights under this Article IX, at least 25 days prior to the anticipated filing date of the registration statement relating to such Registration. Such notice shall offer all such Stockholders the opportunity to include in such registration statement such number of Registrable Securities as each such Stockholder may request. Upon the written request of any such Stockholder made within 10 days after the receipt of the Company's notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Stockholder and the intended method of disposition thereof), the Company will use its best efforts to effect the Registration under the Securities Act and the qualification under any applicable state securities or Blue Sky laws of all Registrable Securities which the Company has been so requested to register by the Stockholders thereof, to the extent required to permit the disposition (in accordance with such intended methods thereof) of the Registrable Securities so requested to be registered; provided that: -------- (a) if such Registration involves an underwritten public offering, all Stockholders requesting that their Registrable Securities be included in the Company's Registration must, upon request by the underwriter(s), sell their Registrable Securities to such underwriter(s) selected by the Company (or the Requesting Stockholders in accordance with Section 9.1, as the case may be) on the same terms and conditions as apply to the Company or any selling securityholder (or on equivalent terms and conditions, in the event that such requesting Stockholders hold different securities from those being sold by the Company or such selling securityholder), including, without limitation, executing and delivering such underwriting agreements or other related agreements 50 to which the Company or any such selling securityholder has agreed to execute and deliver; (b) if, at any time after giving written notice of its intention to register any securities pursuant to this Section 9.2 and prior to the effective date of the registration statement filed in connection with such Registration, the Company shall determine for any reason not to register such securities, the Company shall give written notice to all Stockholders of Registrable Securities and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such Registration (without prejudice, however, to the rights of the Stockholders immediately to request that such registration be effected as a Registration under Section 9.1); (c) if a Registration pursuant to this Section 9.2 involves an underwritten public offering, any Stockholder of Registrable Securities requesting to be included in such Registration may elect, in writing at least 10 days prior to the effective date of the registration statement filed in connection with such Registration, not to register such securities in connection with such Registration; (d) the Company shall not be required to effect any Registration of Common Stock under this Section 9.2 incidental to the registration of any of its securities in connection with mergers, acquisitions, exchange offers, subscription offers, dividend reinvestment plans or stock option or other executive or employee benefit or compensation plans (including, without limitation, any registration of securities on a Form S-4 or S-8 registration statement or any successor or similar forms); and (e) no Registration of Common Stock effected under this Section 9.2 shall relieve the Company of its obligation to effect a Registration of shares of Common Stock pursuant to Section 9.1. 9.3 Priority in Piggyback Registrations. ----------------------------------- (a) If at any time following an IPO Event the Company proposes to effect another Registration in connection with an underwritten offering (other than any 51 Registration pursuant to the exercise of any of the demand registration rights referred to in Section 9.1 hereof or any demand registration rights which specify a priority for "piggyback" registration rights which is the same as set forth in Section 9.3(b) below (such latter form of demand registration rights, the "Permitted Demand Registration Rights")), including any Registration for the Company's account, and the managing underwriter(s) advise the Company in writing that, in its or their judgement, the number of shares of equity securities of the Company (including all shares of Registrable Securities) which the Company, the Stockholders and any other persons intend to include in such Registration exceeds the largest number of securities which can be sold without having an adverse effect on such offering, including the price at which such securities can be sold, the Company shall include in such Registration: (i) first, all securities the Company proposes to sell for its own account (the "Company Securities"), (ii) second, to the extent that the number or dollar amount of the Company Securities to be offered by the Company is less than the number of shares of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, the number of Piggyback Securities requested to be sold by any Stockholder who is a member of the Windward Group or a Management Stockholder (provided that if the number of the Company Securities and Piggyback Securities exceeds the number of shares of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, the number of such Piggyback Securities to be included in such offering shall be allocated pro rata among all holders of such Piggyback Securities on the basis of the relative number or amount of Piggyback Securities each such holder has requested to be included in such Registration), and (iii) third, to the extent that the number of Company Securities and Piggyback Securities held by Stockholders is less than the number of shares of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, the equity securities requested to be sold for the account of any other persons (allocated among the persons holding such other securities in such proportions as such persons and the Company may agree). 52 (b) If at any time following an IPO Event the Company proposes to effect another Registration in connection with an underwritten offering pursuant to the exercise of any of the demand registration rights referred to in Section 9.1 hereof or any Permitted Demand Registration Rights, and the managing underwriter(s) advise the Company in writing that, in its or their judgement, the number of shares of equity securities of the Company (including all shares of Registrable Securities) which the Company, the Stockholders and any other persons intend to include in such Registration exceeds the largest number of securities which can be sold without having an adverse effect on such offering, including the price at which such securities can be sold, the Company shall include in such Registration: (i) first, all securities which are held by the Stockholders or other persons who are exercising the demand registration rights referred to in Section 9.1 hereof or any Permitted Demand Registration Rights (the "Demand Securities"), (ii) second, to the extent that the number or dollar amount of the Demand Securities to be offered by the Company is less than the number of shares of Demand Securities which the sellers thereof have been advised can be sold in such offering without having the adverse effect referred to above, the number of Piggyback Securities requested to be sold by any Stockholder who is a member of the Windward Group or a Management Stockholder (provided that if the number of the Demand Securities and Piggyback Securities exceeds the number of shares of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, the number of such Piggyback Securities to be included in such offering shall be allocated pro rata among all holders of such Piggyback Securities on the basis of the relative number or amount of Piggyback Securities each such holder has requested to be included in such Registration), and (iii) third, to the extent that the number of Demand Securities and Piggyback Securities held by Stockholders is less than the number of shares of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, the equity securities requested to be sold for the account of the Company and any other persons (allocated among the Company and the persons holding such other securities in such proportions as such persons and the Company may agree). 53 9.4 Expenses. The Company will pay all Registration Expenses in -------- connection with each Registration of Registrable Securities requested pursuant to this Article IX (including any Registration deemed not to be "effected" under Section 9.1(c) or not consummated as contemplated by Section 9.2(b)) and any other actions that may be taken in connection with any such Registration as contemplated by this Article IX; provided that the Company will not be -------- obligated to pay any underwriting discounts or commissions or transfer taxes, if any, relating to the sale or disposition of shares sold by persons other than the Company pursuant to any such Registration. 9.5 Restrictions on Public Sale by Stockholders and Company. ------------------------------------------------------- (a) In connection with any offering of securities of the Company, including, without limitation, any offering contemplated by this Article IX, each Stockholder agrees that, whether or not such Stockholder's Registrable Securities are included in such Registration, it will consent and agree to comply with any "hold back" restriction, relating to Common Stock or any other securities of the Company then owned by such holder, that may be reasonably requested by the underwriter(s) or placement or other selling agent(s) of such offering. Without limitation to the foregoing, each Stockholder shall, upon request by such underwriter(s) or agent(s), agree not to effect any public sale or distribution, including any sale pursuant to Rule 144 under the Securities Act, of any Registrable Securities, and not to effect any such public sale or distribution of any other equity security of the Company or of any security convertible into or exchangeable or exercisable for any equity security of the Company (in each case, other than as part of such underwritten public offering) during the 30 days prior to, and during the 180 day period beginning on, the effective date of such registration statement (except as part of such Registration). (b) If any Registration of Registrable Securities pursuant to Article IX shall be in connection with an underwritten public offering, the Company agrees, if requested by the underwriter(s) or placement or other selling agent(s), (i) not to effect any public sale or distribution of any of its equity securities or of any security convertible into or exchangeable or exercisable 54 for any equity security of the Company (other than any such sale or distribution of such securities in connection with any merger or consolidation by the Company or a subsidiary of the Company or in connection with the purchase of all or substantially all the assets of any other person or in connection with an employee stock option or other benefit plan) during the 30 days prior to, and during the 180 day period beginning on, the effective date of such registration statement (except as part of such Registration) and (ii) that any agreement entered into after the date of this Agreement pursuant to which the Company issues or agrees to issue any privately placed equity securities shall contain a provision under which holders of such securities agree not to effect any public sale or distribution of any such securities during the period referred to in the foregoing clause (i) or during any of the periods referred to in Section 9.5(a) above, including any sale pursuant to Rule 144 under the Securities Act (except as part of such Registration, if permitted). (c) In connection with any offering of securities of the Company contemplated by this Article IX, the Company shall take such other actions in connection therewith as may be necessary or appropriate, including, without limitation, entering into customary underwriting arrangements and agreeing to indemnify any Requesting Stockholder or any other Stockholder selling Common Stock in such offering. 9.6 Indemnification by the Company. In the event of any Registration ------------------------------ of any securities of the Company under the Securities Act pursuant to Article IX, the Company will, and it hereby does, indemnify and hold harmless, to the full extent permitted by law, each of the Stockholders holding any Registrable Securities covered by such registration statement, its Representatives, each other person who participates as an underwriter in the offering or sale of such securities and each other person, if any, who controls, is controlled by or is under common control with such Stockholder or any such underwriter within the meaning of the Securities Act, against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement effected with the Company's consent, which consent shall not be unreasonably withheld) to which such Stockholder, any such Repre- 55 sentative or any such underwriter or controlling person may become subject under the Securities Act, state securities or blue sky laws, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) or expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such Registration, and the Company will reimburse such Stockholder and each such Representative or underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending such loss, claim, liability, action or proceeding; provided that the Company shall not be liable in any such case to -------- the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expenses arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or amendment or supplement thereto or in any such preliminary, final or summary prospectus in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Stockholder or any such Representative or underwriter specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Stockholder or any such Representative or underwriter and shall survive the transfer of such securities by such Stockholder. 9.7 Indemnification by the Stockholders and Underwriters. The ---------------------------------------------------- Company may require, as a condition to including any Registrable Securities in any registration statement filed in accordance with Article IX, that the Company shall have received an undertaking reasonably satisfactory to it from the Stockholders of such Regis- 56 trable Securities and any underwriter, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 9.6) the Company and its Representatives and all other prospective sellers and their respective Representatives, and their respective controlling persons with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or its representatives through an instrument duly executed by or on behalf of such Stockholder or underwriter, as the case may be, specifically stating that it is for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement thereto, or a document incorporated by reference into any of the foregoing. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the Stockholders, underwriters or any of their respective Representatives or controlling persons and shall survive the transfer of such securities by such Stockholder; provided that no such Stockholder shall be -------- liable under this Section 9.7 for any amounts exceeding the product of the purchase price per Registrable Security and the number of Registrable Securities being sold pursuant to such registration statement or prospectus by such Stockholder (net of any underwriters' or placement agents' fees, discounts or commissions related thereto and net, in the case of the members of the Windward Group, of the purchase price paid by such member pursuant to the Stock Purchase Agreement). 9.8 Notices of Claims, Etc. Promptly after receipt by an indemnified ---------------------- party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Article IX, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, promptly give written notice to the latter of the commencement of such action; provided, however, that -------- ------- the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subsections of this Article IX, except to the extent that 57 the indemnifying party is actually materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to participate in and, jointly with any other indemnifying party similarly notified, to assume the defense thereof, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties arises in respect of such claim after the assumption of the defense thereof, and the indemnifying party will not be subject to any liability for any settlement made without its consent (which consent shall not be unreasonably withheld). No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels. 9.9 Other Indemnification. Indemnification similar to that specified --------------------- in the preceding Sections of this Article IX (with appropriate modifications) shall be given by the Company and each Stockholder of Registrable Securities with respect to any required Registration or other qualification of securities under any federal or state law or any regulation of a governmental authority other than arising under the Securities Act. 58 9.10 Registration Procedure. ---------------------- (a) If and whenever the Company is required to effect or cause the Registration of any Registrable Securities pursuant to this Article IX, the Company will, as expeditiously as possible: (1) Prepare in cooperation with the sellers (and, in the event of an underwritten public offering, with the underwriter(s)), and file with the SEC, in a manner consistent with the provisions of this Article IX, a registration statement with respect to such Registrable Securities on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate as the case may be, and which form shall be available for the sale of the Registrable Securities in accordance with the intended methods of distribution thereof, and use its best efforts to cause such registration statement to become and remain effective; provided that before filing with the SEC a -------- registration statement or prospectus or any amendments or supplements thereto, the Company will (i) furnish to one counsel selected by the Requesting Stockholder(s), in the event of a Registration effected pursuant to Section 9.1 hereof, or selected by the holders of a majority of the Registrable Securities covered by such registration statement, in the event of any other Registration, copies of all such documents proposed to be filed, which documents will be subject to the timely review of such counsel, and (ii) notify each holder of Registrable Securities covered by such registration statement of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (2) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days or such shorter period which will terminate when all Registrable Securities covered by such registration statement have been sold (but not before the expiration of the 90-day period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registra- 59 tion statement during such period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement. (3) Furnish to each holder of Registrable Securities covered by the registration statement and to each underwriter, if any, of such Registrable Securities, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), and the prospectus included in such registration statement (including each preliminary prospectus), and such other documents, as such person may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities owned by such holder. (4) Use its best efforts to register or qualify such Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as any holder, and underwriter, if any, of Registrable Securities covered by such registration statement shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; provided -------- that the Company shall not for any such purpose, be required to (A) qualify to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 9.10, it is not then so qualified, (B) subject itself to taxation in any such jurisdiction, or (C) take any action which would subject it to consent to general or unlimited service or process not then so subject. (5) Use its best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities. (6) Immediately notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of 60 the happening of any event which comes to the Company's attention if as a result of such event the prospectus included in such registration statement, as then in effect, includes any untrue statement of a material fact or omits to state a material, fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading and at the request of any such seller, deliver a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (7) Otherwise use its best efforts to comply with all applicable rules and regulations of the SEC and make available to its security holders, in each case as soon as practicable, an earnings statement covering a period of at least 12 months, beginning with the first month after the effective date of the registration statement (as the term "effective date" is defined in Rule 158(c) under the Securities Act), which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act including, at the option of the Company, Rule 158 thereunder. (8) Use its best efforts to cause all such Registrable Securities to be listed on such national securities exchange or the National Association of Securities Dealers National Market System as may be reasonably requested by the Requesting Stockholder, and if any similar securities issued by the Company are then listed on any securities exchanges or national market systems, to also list all such Registrable Securities on such securities exchanges or national market systems, and enter into such customary agreements including a listing application and indemnification agreement in customary form, provided that the applicable listing requirements are satisfied, and to provide a transfer agent and registrar for such Registrable Securities covered by such registration statement no later than the effective date of such registration statement. 61 (9) Use its best efforts to obtain a "cold comfort" letter from the independent public accountants for the Company in customary form and covering matters of the type customarily covered by such letters as may be reasonably requested by the Requesting Stockholder(s), in the event of a Registration effected pursuant to Section 9.1 hereof, or by the holders of a majority of the Registrable Securities covered by such registration statement, in the event of any other Registration. (10) Execute and deliver all instruments and documents (including in an underwritten offering an underwriting agreement in customary form) and take such other actions and obtain such certificates and opinions as sellers of a majority of the Registrable Securities being sold reasonably request in order to effect an underwritten public offering of such Registrable Securities. The Company may require each holder of Registrable Securities as to which any Registration is being effected to furnish to the Company such information regarding such holder and the distribution of such Registrable Securities as the Company may from time to time reasonably request in writing in connection with effecting such offering. (b) Each holder of Registrable Securities will, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 9.10(a)(6), forthwith discontinue disposition of the Registrable Securities pursuant to the registration statement covering such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 9.10(a)(6), and, if so directed by the Company, such holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such holder's possession, of the prospectus covering such Registrable Securities at the time of receipt of such notice. 9.11 Rule 144. If the Company shall have filed a registration -------- statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act, the Company covenants that it will file the reports required to be filed by it under the Securities Act and 62 the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any holder of Registrable Securities, make publicly available other information), and it will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell shares of Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with such requirements. ARTICLE X ADDITIONAL STOCKHOLDERS 10.1 Transferees of Stockholders or the Company. No Transfers of ------------------------------------------ shares of Company Stock may be made (and shall not be effective) to a Permitted Transferee or to any Third Party, unless in each case prior to such Transfer any such transferee agrees in writing to be bound (to the same extent as contemplated with respect to the Stockholder (or the Permitted Transferee(s) thereof) transferring such shares of Company Stock) by the terms and conditions of this Agreement pursuant to a supplementary agreement reasonably satisfactory in form and substance to the Company. The Company may, as a condition to any original issuance of Company Stock to a person who or which is not at such time a Stockholder, require that such person agree in writing to be bound by the terms and conditions of this Agreement pursuant to a supplementary agreement reasonably satisfactory in form and substance to the Company. Upon entering into such supplementary agreement, such transferee or purchaser of Company Stock shall be deemed to be a Stockholder for all purposes of this Agreement. The provisions of this Section 10.1 shall not apply to any Transfer (a) made pursuant to a public offering of Company Stock, including in connection with the exercise by any Stockholder of its rights pursuant to Article IX hereof or in connection with the exercise by the Windward Agent of its rights 63 pursuant to Section 5.6 hereof, or (b) made in connection with the exercise by the Windward Group of a Compelled Sale Right. 10.2 New Stockholders. Each Independent Nominee, member of ---------------- management or other employee of the Company or any of its subsidiaries who becomes a holder of Company Stock after the date hereof shall be deemed, upon the execution of a supplementary agreement described below, to have the same rights and obligations as a Stockholder for purposes of this Agreement. The Company shall not issue Company Stock to any Independent Nominee, member of management or other employee of the Company or any of its subsidiaries unless the person to whom the Company Stock is to be issued or transferred agrees in writing to be bound by the terms and conditions of this Agreement pursuant to a supplementary agreement reasonably satisfactory in form and substance to the Company; upon entering into such agreement, such member of management or other employee of the Company or any of its subsidiaries shall be deemed to be a Management Stockholder for all purposes of this Agreement. The parties hereto acknowledge and agree that the Company Stock Option Plan (or the agreements entered into in connection therewith) shall provide that optionholders thereunder will be required to become parties to this Agreement upon any exercise of options granted thereunder, as a condition to the exercise of such options. 10.3. Supplemental Agreements. Each supplementary agreement ----------------------- referred to in Sections 10.1 and 10.2 above, shall become effective upon its execution by the Company and the new holder of Company Stock, and it shall not require the signatures or the consent of the other Stockholders (or their respective Permitted Transferees). The supplementary agreement between the Company and any new holder of Company Stock may modify some of the terms and conditions of this Agreement as they affect the rights and obligations of the new holder of Company Stock, provided that the modified terms and conditions shall be no less favorable to the other Stockholders (or their respective Permitted Transferees) than the terms and conditions set forth in this Agreement. The Schedule of Management Stockholders attached hereto shall be updated from time to time to include each Management Stockholder who becomes a party to this Agreement after the date hereof. 64 ARTICLE XI STOCK LEGENDS 11.1 Stock Certificate Legend. A copy of this Agreement shall be ------------------------ filed with the Secretary of the Company and kept with the records of the Company. Each of the Stockholders agrees that the following two legends shall be placed on the certificates representing any shares of Company Stock owned by them: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CERTAIN OTHER CONDITIONS, AS SPECIFIED IN A STOCKHOLDERS AGREEMENT DATED AS OF FEBRUARY 14, 1997 (COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF HCC INDUSTRIES INC. (TOGETHER WITH ITS SUCCESSORS, THE "COMPANY") AND WHICH WILL BE MAILED TO A STOCKHOLDER WITHOUT CHARGE WITHIN FIVE DAYS AFTER RECEIPT BY THE COMPANY OF A WRITTEN REQUEST THEREFOR FROM SUCH STOCKHOLDER). THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT PURSUANT TO THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT AND, EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS (SUCH FEDERAL AND STATE LAWS, THE "SECURITIES LAWS") OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF THE SECURITIES LAWS." All Stockholders shall be bound by the require- 65 ments of such legends to the extent that such legends are applicable. Upon a Registration of any shares of Company Stock, the certificate representing such shares shall be replaced, at the expense of the Company, with certificates bearing only the first of the two legends referred to above. ARTICLE XII APPOINTMENT OF AGENTS 12.1 Appointment of Agent for Windward Group Matters. ----------------------------------------------- (a) Each member of the Windward Group hereby irrevocably (subject to the provisions of paragraph (e) below) designates and appoints Windward as its attorney-in-fact, agent and representative, to act on its behalf and on behalf of its Permitted Transferees, (i) in connection with exercising any of its rights hereunder, performing any of its duties or obligations hereunder or enforcing any claims or rights on its behalf under this Agreement, (ii) to investigate, contest, litigate, demand, sue for, collect, recover and receive all claims, debts, monies and other amounts whatsoever which may hereafter become due to the members of the Windward Group in connection with this Agreement (including, without limitation, instituting any action, suit or legal proceeding to enforce any of its rights hereunder) and to make, execute and deliver receipts, releases, settlements, adjustments and other discharges therefor, (iii) to defend, settle, adjust, submit to arbitration or compromise all actions, suits, accounts, reckonings, claims and demands that may be brought against the members of the Windward Group in connection with this Agreement (including, without limitation, defending, or settling any claims brought by the Company, the Management Stockholders or any of the other parties hereto in connection with this Agreement), (iv) to amend, supplement or grant any waiver under, this Agreement or any other agreement or document contemplated hereby, (v) to vote at any annual or special meeting of stockholders, or to take action by written consent in lieu of such meeting with respect to, all of the shares of Company Stock owned or held of record by such Stockholder, but only for (1) the election of directors designated in accordance with 66 Section 2.2 hereof, (2) the removal of directors in accordance with Sections 2.4 and 2.5 hereof, and (3) the election of a director to fill any vacancy on the Board in accordance with Section 2.3 hereof, (vi) in executing, acknowledging, verifying and/or delivering any and all agreements, certificates and instruments in connection with taking any of the actions referred to in clauses (i), (ii), (iii), (iv) and (v) above, and (vii) in doing, executing and performing any other act, deed, matter or thing, of any kind or nature whatsoever, that is necessary, appropriate or advisable to enforcing any claims or rights under this Agreement or performing any of its duties or obligations hereunder or otherwise representing its interests hereunder; all of the foregoing actions may be taken in such manner as Windward determines in its sole discretion to be appropriate, advisable or necessary. (b) The designation and appointment of Windward referred to in the previous paragraph (a) shall be deemed to be irrevocable (subject to the provisions of paragraph (e) below) and coupled with an interest and shall survive the death, dissolution, bankruptcy, incompetency or legal disability of any member of the Windward Group. Without limitation to the foregoing and notwithstanding anything to the contrary contained in this Agreement, if any payments or other amounts are received by Windward on behalf of the members of the Windward Group from the Company, the Management Stockholders or any of the other parties hereto in connection with this Agreement, Windward shall, after deducting any expense reimbursement amounts with which it may be entitled, distribute such amounts to the various members of the Windward Group in such manner as Windward deems reasonably appropriate in light of each member's relevant interests and the particular circumstances. (c) Each of the parties to this Agreement acknowledges and agrees that, notwithstanding anything in this Agreement to the contrary, the provisions of this Section 12.1 may be amended, modified or supplemented by a majority in number of the members of the Windward Group (such majority in number of members, the "Requisite Members"); provided that (i) such amendment, modification or -------- supplement is in writing and copies thereof are provided to the other parties to this Agreement within a reasonable period following the date of such amendment, 67 modification or supplement and (ii) such amendment, modification or supplement does not adversely affect any of the rights, duties or obligations of any party to this Agreement (other than the members of the Windward Group). Other than Windward (or any successor thereof appointed pursuant to Section 12.1(e) hereof) and other than any actions taken at the request or with the consent of Windward or such successor, each of the members of the Windward Group agrees that it will not take any action, nor institute any actions or proceedings, against the Company, the Management Stockholders or any of the other parties hereto (other than another member of the Windward Group) in connection with this Agreement or with respect to any matters referred to in this Agreement, except with the prior written consent of the Requisite Members. (d) Windward (or any successor thereof appointed pursuant to this Section 12.1(e)) may resign from the performance of all its functions and duties as agent on behalf of the Windward Group under this Agreement at any time by giving at least 30 Business Days' prior written notice to the other parties to this Agreement. Such resignation shall take effect upon the acceptance by a successor agent of its appointment pursuant to this Section 12.1(e). Upon any such notice of resignation by Windward (or any such successor thereof), the Requisite Members shall appoint a successor agent. If a successor agent shall not have been so appointed within said 30 Business Day period, Windward (or any duly appointed successor thereof) shall then appoint a successor who shall serve as agent on behalf of the Windward Group under this Agreement until such time, if any, as the Requisite Members appoint a successor agent as provided in this Section 12.1(e). Windward (or any successor thereof appointed pursuant to this Section 12.1(e)) may be removed by the Requisite Members and replaced with another person, at any time and for any reason, upon ten (10) days prior written notice given by the Requisite Members to the agent then in effect and all other parties to this Agreement. Upon the appointment of a successor agent hereunder, references in this Agreement to Windward, acting in its role as agent for the Windward Group, shall, for all purposes of this Agreement, thereafter mean such successor agent. (e) In the event that any member of the Windward Group does not opt to purchase its allocable 68 share of Company Stock pursuant to the exercise of any preemptive rights pursuant to Article VI hereof or the right of first refusal in Article III, or sell its allocable shares pursuant to the "tag-along" rights in Article IV, Windward (or any successor thereof appointed pursuant to Section 12.1(e) above) may reallocate such shares among the remaining members of the Windward Group, in such manner as it deems reasonably appropriate in light of each member's relevant interests and the particular circumstances. 12.2 Appointment of Agent for the Management Stockholders. Each ---------------------------------------------------- Management Stockholder hereby irrevocably designates and appoints Andrew Goldfarb as its attorney-in-fact, agent and representative, to act on its behalf and on behalf of its Permitted Transferees in connection with exercising any of its rights, performing any of its duties or obligations or enforcing any claims or rights on its behalf, arising pursuant to Article IX of this Agreement. ARTICLE XIII TERM OF AGREEMENT 13.1 Term. This Agreement shall terminate, and be of no further ---- force or effect, automatically without any further action on the part of any parties hereto, upon the earlier of (a) the ten (10) year anniversary of the date hereof, (b) an IPO Event, (c) a sale of all or substantially all of the assets or equity interests in the Company to a Third Party (whether by merger, consolidation, sale of assets or securities or otherwise), (d) approval by the Windward Agent and by those Management Stockholders who hold at least a majority of the total amount of the then-outstanding Company Stock held by Management Stockholders at such time, or (e) the Windward Group (together with its Permitted Transferees) ceases to own at least five percent (5%) of the total outstanding number of shares of Company Stock (calculated on a Fully-Diluted Basis), unless such reduction is the result of any Transfers to Permitted Transferees in accordance with this Agreement; provided that, in the event of an -------- IPO Event, the provisions of Articles VIII, IX, X, XI, XII, XIII and XIV (other than Section 14.1) of this Agreement shall continue in full force and effect until the earli- 69 est to occur of the events set forth in clauses (a), (c), (d) or (e). ARTICLE XIV MISCELLANEOUS 14.1 Confidentiality. Except with the prior written consent of the --------------- Company (which consent may not be unreasonably withheld) and except as otherwise required by law or the listing requirements of any securities exchange on which the securities of such Stockholder are then traded, each Stockholder shall, and shall cause each of its Representatives to (a) hold in strict confidence all confidential, proprietary or other non-public information or trade secrets relating to the Company or its subsidiaries or their respective assets or operations (the "Confidential Information"), and (b) not release or disclose in any manner whatsoever to any other person any such Confidential Information; provided that (i) the foregoing provisions shall not apply to any disclosure, to - -------- the extent reasonably required, to (A) those of such Stockholder's auditors, attorneys and other representatives who agree to be bound by the provisions of this Section 8.1 and (B) any other persons in connection with any actions to be taken pursuant to Article V of this Agreement, (ii) the foregoing provisions shall not apply where such Stockholder or any of its Representatives is compelled to disclose such Confidential Information, by judicial or administrative process or, in the reasonable opinion of its counsel, by other requirements of law (provided that prior written notice of such disclosure is given to the Company and any such disclosure is limited to only that portion of the Confidential Information which such person is compelled to disclose), (iii) the term "Confidential Information" shall not include information (A) which is or becomes generally available to the public other than as a result of disclosure of such information by such Stockholder or any of its Representatives, (B) becomes available to the recipient of such information on a non-confidential basis from a source which is not, to the recipient's knowledge, bound by a confidentiality or other similar agreement, or by any other legal, contractual or fiduciary obligation which prohibits disclosure of such information to the other parties hereto, or (C) which can be demonstrated to have 70 been developed independently by the representatives of such recipient which representatives have not had any access to any information which would otherwise be deemed to be "Confidential Information" pursuant to the provisions of this Section 8.1, and (iv) each of the Stockholders acknowledges and agrees that any information they may receive from the Company in its reports to stockholders is confidential, proprietary and non-public in nature. 14.2 Specific Performance. Each of the Stockholders acknowledges -------------------- and agrees that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed, no adequate remedy at law would exist and damages would be difficult to determine. It is accordingly agreed that (x) in the event of a breach of any provision of this Agreement, the aggrieved party shall be entitled to specific performance of this Agreement and to enjoin any continuing breach of this Agreement (without the necessity of proving actual damages and without posting bond or other security), in addition to any other remedy to which such aggrieved party may be entitled at law or in equity, and (y) the Stockholders will waive the defense in any action for specific performance or other equitable relief that a remedy at law would be adequate. 14.3 Consent to Jurisdiction, Etc. Each of the parties hereto ----------------------------- irrevocably and unconditionally (a) agrees that all suits, actions or other legal proceedings arising out of this Agreement or any of the transactions contemplated hereby (a "Suit") shall be brought and adjudicated solely in the ---- United States District Court in the State of New York, or, if such courts will not accept jurisdiction, in any court of competent civil jurisdiction sitting in the State of New York, (b) submits to the exclusive jurisdiction of any such court for the purpose of any such Suit and (c) waives and agrees not to assert by way of motion, as a defense or otherwise in any such Suit, any claims that it is not subject to the jurisdiction of the above courts, that such Suit is brought in an inconvenient forum or that the venue of such Suit is improper. Each of the parties hereto also irrevocably and unconditionally consents to the service of any process, summons, pleadings, notices or other papers in a manner permitted by the notice provisions of Section 14.7 hereof and agrees that any such form of service shall be 71 effective in connection with any such Suit; provided that nothing contained -------- herein shall affect the right of any party to serve process, pleadings, notices or other papers in any other manner permitted by applicable Law. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in any Suit shall be conclusive and binding on such party and that such judgment may be enforced in any other jurisdiction, either within or outside of the United States, by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and amount of such judgment. 14.4 Attorneys' Fees. In any legal action or proceeding (including, --------------- without limitation, any arbitration proceeding) brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, or because of an alleged dispute, breach or default in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other available remedy or relief to which such party or parties may be entitled. 14.5 Headings; No Third Party Beneficiaries. The headings and -------------------------------------- captions contained herein are for convenience of reference only and shall not control or affect the meaning or construction of any of the provisions hereof. Except as otherwise expressly provided herein, the covenants, agreements and other provisions contained in this Agreement are for the sole benefit of the parties hereto and their permitted successors and assigns, and they shall not be construed as conferring, and are not intended to confer, any rights, remedies or other benefits hereunder on any other persons. Neither this Agreement nor any purchase or sale of Company Stock shall create, or be construed or deemed to create, any right to employment in favor of the Management Stockholder or any other person by the Company or any subsidiary of the Company. 14.6 Entire Agreement. This Agreement constitutes the entire ---------------- agreement and understanding of the parties hereto in respect of the subject matter contained herein, and there are no restrictions, promises, representations, warranties, covenants or undertakings with 72 respect to the subject matter hereof, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. 14.7 Notices. All notices, requests, instructions or and other ------- communications to be given hereunder by any party hereto to another party hereto shall be in writing and, unless otherwise provided herein, shall be deemed duly given if delivered personally, telecopied (which is confirmed) or sent by registered or certified mail (postage prepaid, return receipt requested) or by Federal Express or other similar courier service (i) to the Company, any member of the Windward Group at the addresses set forth below, (ii) in the case of a Permitted Transferee, to the address set forth in the written agreement executed pursuant to Article X hereof, (iii) if to a Management Stockholder, as listed on the signature page hereto, or, if not so listed, to it at its address as reflected in the stock records of the Company, or (iv) in the case of any member of management or other employee of the Company or any of its subsidiaries who becomes a holder of Company Stock or options to acquire Company Stock after the date hereof, to the address set forth in the written agreement executed pursuant to Article X hereof: If to the Company or to any Management Stockholder, to it at: HCC Industries Inc. 4232 Temple City Blvd. Rosemead, CA 91770 Attention: Andy Goldfarb Fax: (818) 443-9074 With copies to: O'Melveny & Meyers 1999 Avenue of the Stars Suite 700 Los Angeles, CA 90067 Attention: Robert D. Haymer, Esq. Fax: (310) 246-6779 -------------------- 73 Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, NY 10022 Attention: Lou R. Kling, Esq. Fax: (212) 735-2001 If to Windward or any member of the Windward Group, to: Windward Capital Partners, L.P. Eleven Madison Avenue 28th floor New York, NY 10010 Attention: Thomas J. Sikorski Fax: (212) 448-5481 With copies to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, NY 10022 Attention: Lou R. Kling, Esq. Fax: (212) 735-2001 If to Windward/Park, to: Windward/Park HCC, L.L.C. c/o Metropolitan Life Insurance Company Corporate Equities 334 Madison Avenue, P.O. Box 633 Covenant Station, NJ 07961-0633 Attention: Vice President Telecopy No.: (201) 254-3055 and: Metropolitan Life Insurance Company One Madison Avenue, Area 7H New York, New York 10010 Attention: Thomas C. Hoi, Esq. Telecopy No.: (212) 578-3916 provided that in the event any of the parties referred to above desires to - -------- designate another address to which such notices should be sent to such party, such party may designate such other address by giving notice to the other parties hereto in writing as set forth in this Sec- 74 tion 14.7 (provided that any change of address shall be effective only upon receipt thereof). 14.8 Applicable Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS -------------- OF THE PARTIES HEREUNDER AND THE PARTIES SUBJECT HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF. 14.9 Severability. The invalidity or unenforceability of any ------------ provision of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of this Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. 14.10 Successors; Assigns; Transferees; Amendments; Waivers. ------------------------------------------------------ (a) The provisions of this Agreement shall be binding upon and accrue to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. Notwithstanding the foregoing, this Agreement may not be amended, modified or supplemented, no waivers of, consents to or departures from the provisions hereof may be given, and neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Company or any Stockholder without the prior written consent of (i) each of the Company and the Windward Agent (and their respective Permitted Transferees) and (ii) the Management Stockholders owning a majority of the shares of Common Stock which are owned by all the Management Stockholders; provided that this Agreement may be amended, modified or supplemented by the - -------- Company, and waivers of, consents to or departures from the provisions hereof may be given by the Company, in order to cure any ambiguity, defect or inconsistency in this Agreement, so long as (x) such action does not adversely affect the rights of any Stockholder in any material respect and (y) the Company promptly notifies each Stockholder in accordance with the provisions of Section 14.7 hereof of such action. 75 (b) The rights and remedies of the Stockholders and the Company under this Agreement shall be cumulative and not exclusive of any rights or remedies which either would otherwise have hereunder or at law or in equity or by statute, and no failure or delay by either party in exercising any right or remedy shall impair any such right or remedy or operate as a waiver of such right or remedy, nor shall any single or partial exercise of any power or right preclude such party's other or further exercise or the exercise of any other power or right. 14.11 Defaults; No Circumvention of Agreement. A default by any --------------------------------------- party to this Agreement in such party's compliance with any of the conditions or covenants hereof or performance of any of the obligations of such party hereunder shall not constitute a default by any other party. No Stockholder or any of its Permitted Transferees may do indirectly, through the sale of capital stock of its or their subsidiaries or otherwise, that which is not permitted by this Agreement (including, without limitation, the provisions of Articles III, IV and V hereof). 14.12 Further Assurances. Each party hereto or person subject hereto ------------------ shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto or person subject hereto may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 14.13 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original but all of which shall constitute one and the same Agreement. 14.14 Recapitalization, etc. Except as otherwise provided in this --------------------- Agreement, the provisions of this Agreement shall apply to any and all shares of capital stock or other securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets, or otherwise) which may be issued in respect of, in exchange for, or in substitution of, any shares of Company Stock by reason of any reorgani- 76 zation, any recapitalization, reclassification, merger, consolidation, partial or complete liquidation, sale of assets, spin-off, stock dividend, split, distribution to stockholders or combination of the shares of Company Stock or any other change in the Company's capital structure, in order to preserve fairly and equitably as far as practicable, the original rights and obligations of the parties hereto under this Agreement. 77 IN WITNESS WHEREOF, this Agreement has been duly executed by each of the parties hereto as of the date first written above. HCC INDUSTRIES INC. By:______________________________ Name: Title: WINDWARD CAPITAL ASSOCIATES, L.P. By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: WINDWARD/PARK HCC L.L.C. By: Windward Capital Associates, L.P., its manager By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: WINDWARD/MERBAN, L.P. By: Windward Capital Associates, L.P., its general partner By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: WINDWARD/MERCHANT, L.P. By: Windward Capital Associates, L.P., its general partner By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: __________________________________ Andrew Goldfarb, Co-Trustee for the Andrew and Denise Goldfarb Revocable Trust of 1995 __________________________________ Denise Goldfarb, Co-Trustee for the Andrew and Denise Goldfarb Revocable Trust of 1995 __________________________________ Steven H. Goldfarb, Trustee for the Jessica Anne Goldfarb Irrevocable Trust __________________________________ Steven Goldfarb, Trustee for the Rebecca Goldfarb Irrevocable Trust __________________________________ Christopher H. Bateman __________________________________ Linda C. Rillorta __________________________________ Richard L. Ferraid __________________________________ Debra E. Ferraid __________________________________ Dennis L. Moore __________________________________ Linda L. Moore __________________________________ Mansoor Mosallaie __________________________________ Sepideh Kessai __________________________________ Darwin Stuckey __________________________________ Normand O. Allard _____________________________ Carol A. Allard _____________________________ Steven Goldfarb (to the extent a beneficial owner of any Company Stock) Date:________________ ______________________________ [Signature of Management Stockholder] Name: --------------------------- [Please Print] Address: --------------------------- --------------------------- --------------------------- --------------------------- Spousal Waiver -------------- _______________ [Name of spouse] hereby waives and releases any and all equitable or legal claims and rights, actual, inchoate or contingent which __________________ [he or she] may acquire with respect to the disposition, voting or control of the shares of Company Stock subject to this Agreement, except for rights in respect of the proceeds of any disposition of such Company Stock. ______________________________ [Signature of spouse] Schedule of Management Stockholders ----------------------------------- Andrew Goldfarb, a resident of California Denise Goldfarb, a resident of California Christopher Bateman, a resident of California Linda Rillorta, a resident of California Richard L. Ferraid, a resident of New Jersey Debra Ferraid, a resident of New Jersey Dennis Moore, a resident of California Linda Moore, a resident of California Mansour Mosallaie, a resident of California Sepideh Kessai, a resident of California Darwin Stuckey, a resident of Ohio Norm Allard, a resident of Ohio Carol Allard, a resident of Ohio Steven Goldfarb, a resident of California Exhibit A --------- Form of Junior Subordinated Promissory Note ------------------------------------------- EXHIBIT A TO STOCKHOLDERS AGREEMENT ----------------------------------- THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). NO SALE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION OF THIS NOTE (OTHER THAN TO THE ISSUER THEREOF) MAY BE MADE UNLESS (A) EITHER PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (B) IN ACCORDANCE WITH THE PROVISIONS OF THIS NOTE. JUNIOR SUBORDINATED PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned, HCC INDUSTRIES INC., a Delaware corporation [ALTERNATIVELY, INSERT NAME OF DESIGNEE OF COMPANY] (the "Obligor"), hereby promises to pay to [INSERT NAME OF MANAGEMENT STOCKHOLDER OR PERMITTED TRANSFEREE (AS THE CASE MAY BE)] (such person, or any Authorized Transferee (as defined in Section 3 hereof) of such person, the "Holder") the principal amount of [INSERT PRINCIPAL AMOUNT OF NOTE] ($_________), plus interest accrued but unpaid thereon, on [INSERT DATE WHICH IS [FIFTH] ANNIVERSARY OF THE DATE OF ISSUANCE OF THIS NOTE (or such later date as may be required pursuant to the terms of any financing agreement of the Company). Interest in the unpaid principal amount hereof shall accrue at an eight percent (8%) annual rate of interest, from the date hereof until maturity, computed on the basis of a 365- day year for the actual number of days elapsed and shall be payable semi- annually on the first day of June and December in each year commencing with the June or December next following the issuance of this Note (each such semiannual date, an "Interest Payment Date"); provided that in the event that, on any -------- Interest Payment Date, the Company (as defined below) is permitted to defer any repurchases of Common Stock pursuant to Section 7.3 of the Stockholders Agreement, the Company shall be permitted to defer such payment of interest until the next Interest Payment Date on which it is no longer permitted to defer any repurchases of Common Stock pursuant to Section 7.3 of the Stockholders Agreement (at which time all interest accrued to such date shall become due and payable). 1. Stockholders Agreement. This Note has been issued pursuant to the ---------------------- provisions of Article VII of the Stockholders Agreement dated as of February 14, 1997 (the "Stockholders Agreement"), by and among by and among HCC Industries Inc., a Delaware corporation (the "Company"), Windward Capital Associates, L.P., a Delaware limited partnership, Windward/Park HCC, L.L.C., a Delaware limited liability company, Windward/Merban, L.P., a Delaware limited partnership, Windward/Merchant, L.P., a Delaware limited partnership and the members of the Company's management listed in the Schedule of Management Stockholders attached hereto, and such other persons or entities who or which become parties to the Stockholders Agreement pursuant to the terms and conditions of the Stockholders Agreement. All capitalized terms used herein and not otherwise defined herein shall have the same meanings as set forth in the Stockholders Agreement. 2. Payment of Amounts. Payments of principal and interest shall be ------------------ made in lawful money of the United States of America at the principal office of the Obligor upon presentation of this Note for notation of such payment hereon. 3. Non-Transferability of Note. This Note is not negotiable and may --------------------------- be transferred by the Holder only to one or more of its Affiliates who agree to be bound by the transfer restrictions hereunder (any such transferee to whom this Note is transferred in compliance with the provisions of this Note, an "Authorized Transferee"). With respect to any such authorized transfer, this Note is transferable only by surrender and cancellation of this Note at the principal office of the Obligor 4232 Temple City Blvd., Rosemead, California 91770 or at such other location as shall at such time be the principal office of the Obligor, by the Holder in person or by an attorney-in-fact duly authorized in writing. Upon any such authorized transfer a new note, in the name of such Authorized Transferee(s), in substantially the form of this Note and for the aggregate unpaid principal amount hereof, will be issued in exchange hereof. 4. Registered Holder. The Obligor, and any agents of the Obligor, ----------------- may deem and treat the Holder as the registered holder hereof, and as the absolute owner of this Note, for the purpose of receiving payment of or on account of the principal of and interest on this Note 2 and neither the Obligor nor any such agent shall be affected by any notice to the contrary. The Obligor, and any agent of the Obligor, may without liability refuse to recognize any assignee or other holder of this Note, other than any Authorized Transferee, as owner of this Note for any and all purposes whatsoever. 5. Optional Prepayment. The amounts owed under this Note are ------------------- prepayable (at the discretion of the Obligor) at any time and from time to time, in whole or in part, upon notice to the Holder given by certified mail, return receipt requested, not less than 10 Business Days prior to the date fixed for prepayment, at a prepayment price equal to the principal amount of this Note to be prepaid, together with the interest accrued but unpaid hereon, to the date fixed for prepayment. Any prepayment of less than the entire principal amount of this Note (plus all accrued but unpaid interest thereon) shall be applied first towards the payment of unpaid interest hereon and then to the unpaid principal hereof. 6. Mandatory Prepayment. The Obligor covenants and agrees that, -------------------- within 10 Business Days following the consummation of (a) a Compelled Sale or (b) a sale of all or substantially all of the assets of or equity interests in the Company to a Third Party, it shall give written notice thereof to the Holder. Subject to Section 9 hereof, within 10 Business Days following the date of delivery of such notice the Obligor will prepay this Note in full, at a prepayment price equal to the outstanding principal amount of this Note, together with the interest accrued but unpaid hereon, to the date fixed for prepayment. 7. Offset. The indebtedness evidenced hereunder may be reduced or ------ offset by the Obligor in respect of any and all indebtedness owed to the Obligor by the Holder. 8. Events of Default. ----------------- (a) Subject to the provisions of Section 9 hereof and to the proviso set forth in the preamble hereto, an "Event of Default" occurs if: (i) the Obligor defaults in the payment of any interest on the Note when the same becomes due and payable, and such default continues for 10 days; (ii) the Obligor defaults in the pay- 3 ment of the principal of the Note when the same becomes due and payable at the stated maturity, upon mandatory redemption, acceleration or otherwise; or (iii) the Obligor or any of its subsidiaries pursuant to or within the meaning of any Bankruptcy Law (as defined in the Subordinated Note Agreement): (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a custodian of it or for any substantial part of its property; (D) makes a general assignment for the benefit of its creditors; or (E) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (1) is for relief against the Obligor in an involuntary case; (2) appoints a custodian of the Obligor or for any substantial part of its property; or (3) orders the winding up or liquidation of the Obligor or any of its subsidiaries, and the order or decree remains unstayed and in effect for 60 days. (b) Subject to the provisions of Section 9 hereof, if an Event of Default pursuant to clause (a)(iii) occurs and is continuing, then the amounts amount owed under the Note shall ipso facto become and be immediately due and ---- ----- payable without any declaration or other act on the part of the Holder. Subject to the provisions of Section 9 hereof, upon an Event of Default pursuant to clauses (a)(i) or (a)(ii) above, the Holder, at its option, may declare the entire principal amount of this Note to be, and such Note shall forthwith mature and become, due and payable, but only after such Holder notifies the Obligor of the default and the Obligor does not cure the default within 30 days after receipt of such notice; such notice by the Holder must specify the default and demand that it be remedied. 9. Subordination. The principal amount of and the interest on this ------------- Note shall be fully subordinated and junior to the prior payment in full in cash all Senior Debt (as hereinafter defined) of the Obligor, whether outstanding at the date of this Note or created or incurred by the Obligor after the date of this Note on the terms and conditions set forth below: (a) Upon maturity of any Senior Debt by lapse of time, acceleration or otherwise, then all such mature Senior Debt shall first be paid in full 4 before any payment on account of principal or interest is made on this Note. (b) In the event of any insolvency, bankruptcy, liquidation, reorganization or other similar proceedings, or any receivership proceedings in connection therewith, relative to the Obligor or its creditors or its property, and in the event of any proceedings for partial or total liquidation, dissolution or other winding up of the Obligor, whether or not involving insolvency or bankruptcy proceedings, then all Senior Debt shall first be paid in full before any payment on account of principal or interest is made upon this Note. In any of the proceedings referred to in the first sentence of this subparagraph (b) ("Insolvency Proceedings"), unless and until all Senior Debt shall have been paid in full, if any payment shall have been made, or any payment or distribution of any kind or character, whether in cash, property, stock or obligations, which may be payable or deliverable in respect of the principal amount of or interest on this Note shall be made, then such amounts shall be paid or delivered directly to the holders of Senior Debt (or to a banking institution selected by the court or person making the payment or delivery or designated by any holder of Senior Debt) for application in payment thereof, and the holders of Senior Debt shall be entitled to enforce all claims of the Holder with respect to the principal and interest payable hereunder and to take generally any action in connection with such Insolvency Proceedings which the Holder hereof might otherwise take in respect of such Holder's claims hereunder. (c) During the continuance of any default in the payment of any Senior Debt or any other default (whether or not matured) under any instrument or agreement evidencing Senior Debt, (i) the Obligor shall not make, and the Holder shall not accept, any payment of principal of or interest on, or purchase or acquire for value, this Note, and (ii) the Holder shall not commence any Insolvency Proceedings or take any other legal or other action of any kind to enforce any of its rights to payment hereunder. 5 (d) Any payment of principal or interest on this Note made to or received by the Holder other than in compliance with this Section 9 shall be held in trust for the benefit of and paid over to the holders of Senior Debt. (e) Until the Senior Debt shall have been indefeasibly paid in full, in the event that, and during the continuance of any Event of Default described in Section 8(a) hereof, all or any portion of the unpaid principal amount of this Note shall have been declared due and payable pursuant to the provisions of Section 8 hereof, such declarations shall not be effective until the earlier of (i) the date on which an Event of Default under Section 8(a)(iii) has occurred, or (ii) the date on which the maturity of any Senior Debt is accelerated. (f) Subject to the indefeasible payment in full of all Senior Debt, the Holder shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of assets of the Obligor payable or distributable to the holders of Senior Debt, until this Note and interest hereon shall be paid in full and, as between the Obligor, its creditors other than the holders of Senior Debt, and the Holder, no payments or distributions otherwise payable or deliverable in respect to this Note but, by virtue of the provisions hereof, paid or delivered to the holders of Senior Debt shall be deemed to be a payment by the Obligor on account of Senior Debt and no payments or distributions paid to the Holder, by virtue of subrogation herein provided for, shall be deemed to be a payment by the Obligor on account of this Note. (g) The provisions of this Section 9 are for the purpose of defining the relative rights of the holders of Senior Debt on the one hand and the Holder on the other hand, and as between the Obligor and the Holder, nothing herein shall impair the obligation of the Obligor, which is unconditional and absolute, to pay to the Holder the principal hereof and any interest thereon in accordance with its terms (provided, however, that this provision is not intended to limit the restrictions on payments on this Note set forth in Section 9(c) hereof). 6 (h) As used herein, the term "Senior Debt" shall mean all Debt (as defined in the Subordinated Note Agreement) of HCC Industries Inc., a Delaware corporation, for principal, interest, fees and other amounts (i) with respect to or relating to the Credit Agreement and the Subordinated Note Agreement, (ii) all Senior Debt (as defined in the Subordinated Note Agreement) and (iii) all Debt with respect to or relating to any refinancing, refunding, renewal, extension, amendment or modification of any Debt referred to in clauses (i) and (ii) above. 10. No Recourse Against Affiliates. No recourse for the payment of ------------------------------ principal of or interest on this Note, or for any claim based hereon or otherwise in respect hereof, or in relation to the creation of any indebtedness represented hereby, shall be had against any incorporator, stockholder, officer of the Obligor or any of its Affiliates or of any successor thereof, either directly or through the Obligor or any of its Affiliates or any successor thereof, whether by virtue of any statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived or released. 11. Applicable Law. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED -------------- AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL CORPORATION LAW. 12. Headings; No Third Party Beneficiaries. The headings and -------------------------------------- captions contained herein are for convenience of reference only and shall not control or affect the meaning or construction of any of the provisions hereof. Except as otherwise expressly provided herein (including, without limitation, the subordination provisions of Section 9 hereof), the provisions contained in this Note are for the sole benefit of the Holder, and they shall not be construed as conferring, and are not intended to confer, any rights, remedies or other benefits hereunder on any other persons or entities. 7 13. Successors and Assigns. All covenants and agreements of the ---------------------- Obligor under this Note shall be binding on the Obligor and its successors and assigns. 14. Severability. The invalidity or unenforceability of any ------------ provision of this Note in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Note in such jurisdiction or the validity, legality or enforceability of this Note, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. 8 IN WITNESS WHEREOF, the Obligor has caused this Note to be duly executed effective as of this ___ day of ____, _____. [INSERT NAME OF OBLIGOR] By: Name: Title: 9 EX-10.1 10 CREDIT AGREEMENT EXHIBIT 10.1 ================================================================================ CREDIT AGREEMENT Dated as of February 14, 1997 by and among HCC INDUSTRIES INC. FLEET CAPITAL CORPORATION AS AGENT, and THE FINANCIAL INSTITUTIONS PARTY HERETO ================================================================================ TABLE OF CONTENTS
Page ---- SECTION 1. Amount and Terms of Credit............................... 1 1.01 Commitment............................................... 1 1.02 Minimum Borrowing Amounts, etc........................... 4 1.03 Notice of Borrowing...................................... 4 1.04 Disbursement of Funds.................................... 5 1.05 Notes.................................................... 5 1.06 Conversions.............................................. 6 1.07 Pro Rata Borrowings...................................... 7 1.08 Interest................................................. 7 1.09 Interest Periods......................................... 8 1.10 Increased Costs, Illegality, etc......................... 9 1.11 Compensation............................................. 11 1.12 Change of Lending Office................................. 11 1.13 Replacement of Lenders................................... 11 SECTION 2. Letters of Credit........................................ 12 2.01 Letters of Credit........................................ 12 2.02 Minimum Stated Amount.................................... 13 2.03 Letter of Credit Requests; Notices of Issuance........... 13 2.04 Agreement to Repay Letter of Credit Drawings............. 13 2.05 Letter of Credit Participations.......................... 14 2.06 Increased Costs.......................................... 16 SECTION 3. Fees; Commitments........................................ 17 3.01 Fees..................................................... 17 3.02 Voluntary Reduction of Commitments....................... 18 3.03 Mandatory Adjustments of Commitments, etc................ 18 SECTION 4. Payments................................................. 19 4.01 Voluntary Prepayments.................................... 19 4.02 Mandatory Prepayments.................................... 20 4.03 Method and Place of Payment.............................. 24 4.04 Net Payments............................................. 25 4.05 Blocked Accounts......................................... 27 SECTION 5. Conditions Precedent..................................... 28 5.01 Execution of Agreement; Notes............................ 28 5.02 No Default; Representations and Warranties............... 28 5.03 Notice of Borrowing; Letter of Credit Request; Etc....... 28 5.04 Officer's Certificate.................................... 29 5.05 Opinions of Counsel...................................... 29 5.06 Corporate Documents; Proceedings......................... 29 5.07 Plans; Existing Indebtedness Agreements; Shareholders' Agreements; Management Agreements; Employment Agreements. 29
i
Page ---- 5.08 Adverse Change, etc....................................... 30 5.09 Litigation................................................ 30 5.10 Approvals................................................. 31 5.11 Consummation of the Recapitalization...................... 31 5.12 Common Stock and Debt Issuance on or Prior to the Initial Borrowing Date.......................................... 31 5.13 Minimum Availability...................................... 32 5.14 Guarantees................................................ 32 5.15 Security Documents........................................ 32 5.16 Solvency.................................................. 33 5.17 Insurance Policies........................................ 33 5.18 Fees...................................................... 33 5.19 Interim EBITDA............................................ 33 5.20 Consent Letter............................................ 33 5.21 Initial Borrowing Base Certificate........................ 33 5.22 Projections; Pro Forma Financial Statements............... 34 5.23 Existing Indebtedness..................................... 34 5.24 Repayment and Termination of Prior Indebtedness and Related Liens....................................... 34 5.25 Environmental Report...................................... 34 5.26 Examination............................................... 34 5.27 Letter of Direction and Flow of Funds..................... 34 5.28 Other Documents........................................... 34 SECTION 6. Representations, Warranties and Agreements................ 35 6.01 Corporate Status.......................................... 35 6.02 Corporate Power and Authority............................. 35 6.03 No Violation.............................................. 35 6.04 Litigation................................................ 36 6.05 Use of Proceeds; Margin Regulations....................... 36 6.06 Governmental Approvals.................................... 36 6.07 Investment Company Act.................................... 36 6.08 Public Utility Holding Company Act........................ 37 6.09 True and Complete Disclosure.............................. 37 6.10 Financial Condition; Financial Statements................. 37 6.11 Security Interests........................................ 38 6.12 Representations and Warranties in Documents............... 38 6.13 Consummation of Recapitalization.......................... 38 6.14 Tax Returns and Payments.................................. 39 6.15 Compliance with ERISA..................................... 39 6.16 Subsidiaries.............................................. 40 6.17 Patents, etc.............................................. 40 6.18 Pollution and Other Regulations........................... 40 6.19 Properties................................................ 41 6.20 Labor Relations........................................... 41 6.21 Existing Indebtedness..................................... 41
ii
Page ---- 6.22 Capitalization............................................ 41 6.23 Compliance with Statutes, etc............................. 42 6.24 Inventory and Accounts.................................... 42 SECTION 7. Affirmative Covenants..................................... 43 7.01 Information Covenants..................................... 43 7.02 Books, Records and Inspections............................ 45 7.03 Maintenance of Property; Insurance........................ 45 7.04 Payment of Taxes.......................................... 45 7.05 Consolidated Corporate Franchises......................... 45 7.06 Compliance with Statutes, etc............................. 45 7.07 ERISA..................................................... 46 7.08 Good Repair............................................... 46 7.09 End of Fiscal Years; Fiscal Quarters...................... 47 7.10 Use of Proceeds........................................... 47 7.11 Additional Security; Further Assurances................... 47 7.12 Interest Rate Protection.................................. 49 SECTION 8. Negative Covenants........................................ 49 8.01 Changes in Business....................................... 49 8.02 Consolidation, Merger, Sale or Purchase of Assets, etc.... 50 8.03 Liens..................................................... 51 8.04 Indebtedness.............................................. 52 8.05 Capital Expenditures...................................... 53 8.06 Advances, Investments and Loans........................... 53 8.07 Prepayments of Indebtedness, etc.......................... 54 8.08 Capital Stock and Dividends, etc.......................... 54 8.09 Transactions with Affiliates.............................. 56 8.10 Debt Payment Coverage Ratio............................... 56 8.11 Minimum Consolidated Net Worth............................ 56 8.12 Leverage Ratio............................................ 56 8.13 Interest Coverage Ratio................................... 57 8.14 Subsidiary Stock.......................................... 57 8.15 ERISA..................................................... 57 SECTION 9. Events of Default......................................... 58 9.01 Payments.................................................. 58 9.02 Representations, etc...................................... 58 9.03 Covenants................................................. 58 9.04 Default Under Other Agreements............................ 58 9.05 Bankruptcy, etc........................................... 58 9.06 ERISA..................................................... 59 9.07 Liens..................................................... 59 9.08 Guaranties................................................ 59 9.09 Judgments................................................. 59
iii
Page ---- 9.10 Change of Control......................................... 60 SECTION 10. Definitions............................................... 60 SECTION 11. The Agent................................................. 88 11.01 Appointment............................................... 88 11.02 Nature of Duties.......................................... 88 11.03 Lack of Reliance on the Agent............................. 88 11.04 Certain Rights of the Agent............................... 89 11.05 Reliance.................................................. 89 11.06 Indemnification........................................... 89 11.07 The Agent in Its Individual Capacity...................... 89 11.08 Holders................................................... 89 11.09 Resignation by the Agent.................................. 90 SECTION 12. Miscellaneous............................................. 90 12.01 Payment of Expenses, etc.................................. 90 12.02 Right of Setoff........................................... 91 12.03 Notices................................................... 91 12.04 Benefit of Agreement...................................... 91 12.05 No Waiver; Remedies Cumulative............................ 93 12.06 Payments Pro Rata; Application of Proceeds................ 93 12.07 Calculations; Computations................................ 96 12.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial.................................... 96 12.09 Counterparts.............................................. 97 12.10 Effectiveness............................................. 97 12.11 Headings Descriptive...................................... 97 12.12 Amendment or Waiver....................................... 97 12.13 Survival.................................................. 98 12.14 Domicile of Loans......................................... 99
iv SCHEDULES and EXHIBITS ----------------------
Schedule 1.01 Commitments Schedule 5.12(b) Equity Rollover Schedule 5.24 Prior Indebtedness Schedule 6.06 Governmental Approvals Schedule 6.15 ERISA Schedule 6.16 Subsidiaries Schedule 6.18 Pollution and Other Regulations Schedule 6.19 Real Property Schedule 6.21 Existing Indebtedness Schedule 6.22 Capitalization Schedule 6.24 Inventory and Accounts Schedule 7.09 Fiscal Years and Fiscal Quarters Schedule 8.03 Liens Schedule 8.06 Investments Schedule 8.09 Transactions With Affiliates Exhibits - -------- Exhibit 1.03 Form of Notice of Borrowing Exhibit 1.05(A) Form of A Term Note Exhibit 1.05(B) Form of B Term Note Exhibit 1.05(C) Form of Revolving Note Exhibit 1.05(D) Form of Swingline Note Exhibit 2.03 Form of Letter of Credit Request Exhibit 5.05(A) Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP Exhibit 5.05(B) Form of Opinion of O'Melveny & Myers Exhibit 5.14 Form of Guaranty Exhibit 5.15(A) Form of Pledge Agreement Exhibit 5.15(B)(1) Form of Security Agreement Exhibit 5.15(B)(2) Form of Assignment of Contracts As Collateral Security Exhibit 5.15(C) Form of Trademark, Patent and Copyright Security Agreement Exhibit 5.16 Form of Solvency Certificate Exhibit 5.21 Form of Borrowing Base Certificate Exhibit 7.01(e) Form of Compliance Certificate Exhibit 7.01(i) Form of Schedule of Inventory Exhibit 7.11(b) Leased Real Property Exhibit 12.04 Form of Assignment Agreement
v CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of February 14, 1997, is by and among HCC INDUSTRIES INC., a Delaware corporation (the "Borrower"), the lending -------- institutions from time to time parties hereto (each a "Lender" and, ------ collectively, the "Lenders") and FLEET CAPITAL CORPORATION, as agent (the ------- "Agent") for the Lenders. Unless otherwise defined herein, all capitalized ----- terms used herein and defined in Section 10 are used herein as so defined. ---------- RECITALS: WHEREAS, the Borrower desires to repurchase certain shares of its common stock from its shareholders (the "Sellers") and each of Windward Capital ------- Associates, L.P., a Delaware limited partnership ("Windward"), Windward/Park -------- HCC, L.L.C., a Delaware limited liability company ("Windward/Park"), ------------- Windward/Merchant, L.P., a Delaware limited liability partnership ("Windward/Merchant"), and Windward/Merban, L.P., a Delaware limited liability - ------------------- partnership ("Windward/Merban" and, together with Windward, Windward/Park and --------------- Windward/Merchant, the "Windward Entities") desire to purchase certain shares of ----------------- common stock of the Borrower, so that giving effect to such repurchase and purchase the Windward Entities will own 65% of the issued and outstanding shares of capital stock of the Borrower, all as set forth in that certain First Amendment and Restatement of the Stock Purchase and Sale Agreement dated as of December 23, 1996 (the "Purchase Agreement") by and among the Windward Entities, ------------------ Metropolitan Life Insurance Company, a New York corporation ("Metlife" and, together with the Windward Entities, "Buyer" or the "Buyer Entities"), the -------------- Borrower and the stockholders of the Borrower set forth on the signature pages thereto; WHEREAS, the Borrower desires that the Lenders extend an A Term Facility in an aggregate principal amount of $30,000,000, a B Term Facility in an aggregate principal amount of $30,000,000 and a Revolving Facility in an aggregate principal amount not to exceed $10,000,000, the proceeds of which will be used by the Borrower as provided herein; and WHEREAS, subject to and upon the terms and conditions set forth herein, the Lenders are willing to make available to the Borrower the credit facilities provided for herein; NOW THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: SECTION 1. Amount and Terms of Credit. -------------------------- 1.01 Commitment. Subject to and upon the terms and conditions herein ---------- set forth and in reliance upon the representations and warranties set forth herein and in the other Loan Documents, each Lender severally agrees to make a loan or loans (each a "Loan" and, collectively, the "Loans") to the Borrower, ---- ----- which Loans shall be drawn, to the extent such Lender has a commitment under such Facility, under the A Term Facility, B Term Facility, and the Revolving Facility, as set forth below: (a) Loans under the A Term Facility (each an "A Term Loan" and, ----------- collectively, the "A Term Loans") (i) shall be made pursuant to a single drawing ------------ which shall be on the Initial Borrowing Date, (ii) shall be made and initially maintained as a single Borrowing of Base Rate Loans (subject to the option to convert such A Term Loans pursuant to Section 1.06) and (iii) shall not exceed ------------ in aggregate principal amount for any Lender at the time of occurrence thereof the A Term Commitment, if any, of such Lender. Once repaid, A Term Loans borrowed hereunder may not be reborrowed. (b) Loans under the B Term Facility (each a "B Term Loan" and, ----------- collectively, the "B Term Loans") (i) shall be made pursuant to a single drawing ------------ which shall be on the Initial Borrowing Date, (ii) shall be made and initially maintained as a single Borrowing of Base Rate Loans (subject to the option to convert such B Term Loans pursuant to Section 1.06) and (iii) shall not exceed ------------ in aggregate principal amount for any Lender at the time of occurrence thereof the B Term Commitment, if any, of such Lender. Once repaid, B Term Loans borrowed hereunder may not be reborrowed. (c) Loans under the Revolving Facility (each a "Revolving Loan" and, -------------- collectively, the "Revolving Loans") (i) shall be made at any time and from time --------------- to time on and after the Initial Borrowing Date and prior to the Expiry Date, (ii) except as hereinafter provided, may, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (A) all Revolving Loans made as part of the same Borrowing -------- shall, unless otherwise specifically provided herein, consist of Loans of the same Type and (B) Revolving Loans maintained as Eurodollar Loans may not be incurred prior to the earlier of 30 days following the Initial Borrowing Date or the Syndication Date, (iii) may be repaid and reborrowed in accordance with the provisions hereof, (iv) shall not exceed in the aggregate for all Lenders at any time outstanding, when combined with the aggregate principal amount of all Swingline Loans then outstanding and all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time, the Borrowing Base at such time and (v) shall not exceed for any Lender at any time outstanding that aggregate principal amount which, when combined with the aggregate outstanding principal amount of all other Revolving Loans of such Lender and with such Lender's Adjusted Revolving Commitment Percentage, if any, of the sum of (A) the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time and (B) the outstanding principal amount of 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) at such time, equals (1) if such Lender is a Non-Defaulting Lender, the Adjusted Revolving Commitment, if any, of such Lender at such time and (2) if such Lender is a Defaulting Lender, the Revolving Commitment, if any, of such Lender at such time. The Borrower hereby authorizes the Agent to charge as Base Rate Loans constituting Revolving Loans the payment when due and payable of all principal, interest, reimbursement obligations, fees and other sums payable hereunder by the Borrower and such Revolving Loans shall be deemed requested by the Borrower, and each Lender shall be obligated to fund its share of the 2 Revolving Loan in the same manner as such Lender is obligated to fund Revolving Loans to repay Swingline Loans as provided in Section 1.01(e) below. --------------- (d) Subject to and upon the terms and conditions herein set forth, Fleet in its individual capacity agrees to make at any time and from time to time on or after the Initial Borrowing Date and prior to the Swingline Expiry Date, a loan or loans to the Borrower (each a "Swingline Loan" and, -------------- collectively, the "Swingline Loans"), which Swingline Loans (i) shall be made ---------------- and maintained as Base Rate Loans, (ii) may be repaid and reborrowed in accordance with the provisions hereof, (iii) shall not exceed in aggregate principal amount at any time outstanding, when combined with the aggregate principal amount of all Revolving Loans made by Non-Defaulting Lenders then outstanding and the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time, an amount equal to the Adjusted Total Revolving Commitment then in effect (after giving effect to any reductions to the Adjusted Total Revolving Commitment on such date), (iv) shall not exceed in aggregate principal amount at any time outstanding, when combined with the aggregate principal amount of all Revolving Loans then outstanding and all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time, the Borrowing Base at such time and (v) shall not exceed in aggregate principal amount at any time outstanding the Maximum Swingline Amount. Fleet will not make a Swingline Loan after it has received written notice from the Required Lenders that one or more of the applicable conditions to Credit Events specified in Section 5 are --------- not then satisfied. (e) On any Business Day, Fleet may, in its sole discretion, give notice to the Revolving Lenders that its outstanding Swingline Loans shall be repaid with a Borrowing of Revolving Loans (provided that each such notice shall -------- be deemed to have been automatically given upon the occurrence of an Event of Default under Section 9.05 or upon the exercise of any of the remedies provided ------------ in the last paragraph of Section 9), in which case a Borrowing of Revolving --------- Loans constituting Base Rate Loans (each such Borrowing, a "Mandatory --------- Borrowing") shall be made on the immediately succeeding Business Day by all - ---------- Revolving Lenders pro rata based on each Revolving Lender's Adjusted Revolving --- ---- Commitment Percentage, and the proceeds thereof shall be applied directly to repay Fleet for such outstanding Swingline Loans. Each Revolving 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 Fleet notwithstanding (i) that the amount of the Mandatory Borrowing may not comply with the Minimum Borrowing Amount otherwise required hereunder, (ii) whether any conditions specified in Section 5 are then satisfied, (iii) whether a Default or --------- an Event of Default has occurred and is continuing, (iv) the date of such Mandatory Borrowing and (v) any reduction in the Total Revolving Commitment, the Adjusted Total Revolving Commitment or the Borrowing Base after any such Swingline Loans were made. 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 Revolving Lender (other than Fleet) hereby agrees that it shall forthwith purchase from Fleet (without recourse or warranty) such assignment of the outstanding Swingline 3 Loans as shall be necessary to cause the Revolving Lenders to share in such Swingline Loans ratably based upon their respective Adjusted Revolving Commitment Percentages, provided that all interest payable on the Swingline -------- Loans shall be for the account of Fleet until the date the respective assignment is purchased and, to the extent attributable to the purchased assignment, shall be payable to the Revolving Lender purchasing same from and after such date of purchase. 1.02 Minimum Borrowing Amounts, etc. The aggregate principal amount ------------------------------- of each Borrowing under a Facility shall not be less than the Minimum Borrowing Amount for such Facility. The aggregate principal amount of each Borrowing of Swingline Loans shall not be less than $100,000, and, if greater, shall be in an integral multiple of $50,000. More than one Borrowing may be incurred on any day; provided, however, that at no time shall there be outstanding more than -------- ------- eight (8) Borrowings of Eurodollar Loans. 1.03 Notice of Borrowing. (a) Whenever the Borrower desires to incur ------------------- Loans under any Facility (excluding Borrowings of Swingline Loans and Mandatory Borrowings), it shall give the Agent at its Notice Office, prior to 11:00 A.M. (New York time), at least three Business Days' prior written notice (or telephone notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans and at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Base Rate Loans to be made hereunder. Each such notice (each a "Notice of Borrowing") shall be in the form ------------------- of Exhibit 1.03 hereto and shall be irrevocable and shall specify (i) the ------------ Facility pursuant to which such Borrowing is being made, (ii) the aggregate principal amount of the Loans to be made pursuant to such Borrowing, (iii) the date of Borrowing (which shall be a Business Day) and (iv) whether the respective Borrowing shall consist of Base Rate Loans or (to the extent permitted) Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be initially applicable thereto. The Agent shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing, of such Lender's proportionate share thereof and of the other matters covered by the Notice of Borrowing. (b) (i) Whenever the Borrower desires to make a Borrowing of Swingline Loans hereunder, it shall give Fleet, prior to 1:00 P.M. (New York time) on the day such 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 shall specify in each case (A) the date of such Borrowing (which shall be a Business Day) and (B) the aggregate principal amount of the Swingline Loan to be made pursuant to such Borrowing. (ii) Mandatory Borrowings shall be made upon the notice specified in Section 1.01(e), with the Borrower irrevocably agreeing, by its incurrence of - --------------- any Swingline Loan, to the making of Mandatory Borrowings as set forth in such Section. (c) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Agent or Fleet (in the case of a Borrowing of Swingline Loans), as the case may be, may prior to receipt of written confirmation act without liability upon the basis of such telephonic notice, believed by the Agent or Fleet in good 4 faith to be from an Authorized Officer of the Borrower. In each such case, the Borrower hereby waives the right to dispute the Agent's or Fleet's record of the terms of such telephonic notice. 1.04 Disbursement of Funds. (a) No later than 2:00 P.M. (New York --------------------- time) on the date specified in each Notice of Borrowing, each Lender with a Commitment under the respective Facility will make available its pro rata share --- ---- of each Borrowing requested to be made on such date in the manner provided below, provided that all Revolving Loans made pursuant to Section 1.01(e) to -------- --------------- refund outstanding Swingline Loans shall be made available to Fleet no later than 2:00 P.M. (New York time) on the date so requested. All such amounts shall be made available to the Agent in Dollars and immediately available funds at the Payment Office and the Agent promptly will make available to the Borrower by depositing to its account at the Payment Office the aggregate of the amounts so made available in the type of funds received. Unless the Agent shall have been notified by any Lender prior to the date of Borrowing that such Lender does not intend to make available to the Agent its portion of the Borrowing or Borrowings to be made on such date, the Agent may assume that such Lender has made such amount available to the Agent on such date of Borrowing, and the Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Lender and the Agent has made available same to the Borrower, the Agent shall be entitled to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Agent. The Agent shall also be entitled to recover on demand from such Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to the Borrower to the date such corresponding amount is recovered by the Agent, at a rate per annum equal to (i) if paid by such Lender, the overnight Federal Funds Effective Rate or (ii) if paid by the Borrower, the then applicable rate of interest, calculated in accordance with Section 1.08, for the respective Loans. ------------ (b) Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder. 1.05 Notes. (a) The Borrower's obligation to pay the principal of, ----- and interest on, the Loans made to it by each Lender shall be evidenced (i) if A Term Loans, by a promissory note substantially in the form of Exhibit 1.05(A) --------------- hereto with blanks appropriately completed in conformity herewith (each an "A - Term Note" and, collectively, the "A Term Notes"), (ii) if B Term Loans, by a - --------- ------------ promissory note substantially in the form of Exhibit 1.05(B) hereto with blanks --------------- appropriately completed in conformity herewith (each a "B Term Note" and, ----------- collectively, the "B Term Notes"), (iii) if Revolving Loans, by a promissory ------------ note substantially in the form of Exhibit 1.05(C) hereto with blanks --------------- appropriately completed in conformity herewith (each a "Revolving Note" and, -------------- collectively, the "Revolving Notes") and (iv) if Swingline Loans, by a --------------- promissory note substantially in the form of Exhibit 1.05(D) hereto with blanks --------------- appropriately completed in conformity herewith (the "Swingline Note"). -------------- 5 (b) The A Term Note issued to each Lender that makes any A Term Loan shall (i) be executed by the Borrower, (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date, (iii) be in a stated principal amount equal to the A Term Loans made by such Lender on the Initial Borrowing Date (or subsequently purchased by such Lender) and be payable in the principal amount of A Term Loans evidenced thereby, (iv) mature on the Expiry Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect ------------ of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 4.02 and ------------ (vii) be entitled to the benefits of this Agreement and the other Loan Documents. (c) The B Term Note issued to each Lender that makes any B Term Loan shall (i) be executed by the Borrower, (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date, (iii) be in a stated principal amount equal to the B Term Loans made by such Lender on the Initial Borrowing Date (or subsequently purchased by such Lender) and be payable in the principal amount of B Term Loans evidenced thereby, (iv) mature on the Final Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in ------------ respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section ------- 4.02 and (vii) be entitled to the benefits of this Agreement and the other Loan - ----- Documents. (d) The Revolving Note issued to each Lender with a Revolving Commitment shall (i) be executed by the Borrower, (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date, (iii) be in a stated principal amount equal to the Revolving Commitment of such Lender and be payable in the principal amount of the Revolving Loans evidenced thereby, (iv) mature on the Expiry Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case - ------------ may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the - ------------ other Loan Documents. (e) The Swingline Note issued to Fleet shall (i) be executed by the Borrower, (ii) be payable to the order of Fleet and be dated the Initial Borrowing Date, (iii) be in a stated principal amount equal to the Maximum Swingline Amount and be payable in the principal amount of Swingline Loans evidenced thereby, (iv) mature on the Swingline Expiry Date, (v) bear interest as provided in Section 1.08 in respect of the Base Rate Loans evidenced thereby ------------ and (vi) be entitled to the benefits of this Agreement and the other Loan Documents. (f) Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will, prior to any transfer of any of its Notes, endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation shall not affect the Borrower's obligations in respect of such Loans. 1.06 Conversions. The Borrower shall have the option to convert on ----------- any Business Day occurring on and after the earlier of 30 days following the Initial Borrowing Date or the 6 Syndication Date all or a portion at least equal to the applicable Minimum Borrowing Amount of the outstanding principal amount of the Loans owing (other than Swingline Loans, which at all times shall be maintained as Base Rate Loans) pursuant to a single Facility into a Borrowing or Borrowings pursuant to such Facility of another Type of Loan, provided that (i) except as otherwise provided -------- in Section 1.10(b), Eurodollar Loans may be converted into Base Rate Loans only --------------- on the last day of an Interest Period applicable thereto and no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Eurodollar Loans made pursuant to such Borrowing to less than the Minimum Borrowing Amount applicable thereto, (ii) Base Rate Loans may only be converted into Eurodollar Loans if no Default or Event of Default is in existence on the date of the conversion and (iii) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be limited in number as provided in ------------ Section 1.02. Each such conversion shall be effected by the Borrower giving the - ------------ Agent at its Notice Office, prior to 11:00 A.M. (New York time), at least three Business Days' (or one Business Day's, in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each a "Notice of Conversion") specifying the Loans to be so -------------------- converted, the Type of Loans to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Agent shall give each Lender prompt notice of any such proposed conversion affecting any of its Loans. 1.07 Pro Rata Borrowings. All Loans under this Agreement (other than ------------------- Swingline Loans) shall be made by the Lenders pro rata on the basis of their A --- ---- Term Commitments, B Term Commitments or Revolving Commitments, as the case may be. It is understood that no Lender shall be responsible for any default by any other Lender in its obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Lender to fulfill its commitments hereunder. 1.08 Interest. (a) The unpaid principal amount of each Base Rate -------- Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Applicable Base Rate Margin plus the Base Rate in effect from time to time. (b) The unpaid principal amount of each Eurodollar Loan shall bear interest from the date of the borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Applicable Eurodollar Margin plus the relevant Eurodollar Rate. (c) During the continuance of any Default, upon notice given to the Borrower by the Required Lenders, all Loans and all other Obligations shall bear interest at a rate per annum equal to the applicable rate plus 2%. (d) Interest shall accrue from and including the date of any Borrowing to but excluding the date of any repayment thereof and shall be payable (i) in respect of each Base Rate Loan, monthly in arrears on the last Business Day of each month, (ii) in respect of each Eurodollar Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period 7 of six months, on the date occurring three months after the first day of such Interest Period and (iii) in respect of each Loan, on any prepayment or conversion (other than the prepayment and conversion of Base Rate Revolving Loans) on the amount prepaid or converted, at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. (e) All computations of interest hereunder shall be made in accordance with Section 12.07(b). ---------------- (f) The Agent, upon determining the interest rate for any Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify the Borrower and the Lenders thereof. 1.09 Interest Periods. (a) At the time the Borrower gives a Notice ---------------- of Borrowing or Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 11:00 A.M. (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans, it shall have the right to elect by giving the Agent written notice (or telephonic notice promptly confirmed in writing) of the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of the Borrower, be a one, two, three or six month period. Notwithstanding anything to the contrary contained above: (i) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period; (ii) the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the date on which the next preceding Interest Period expires; (iii) if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iv) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, however, that if any Interest Period -------- ------- would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (v) no Interest Period shall extend beyond the Expiry Date (in the case of A Term Loans and Revolving Loans) or the Final Maturity Date (in the case of B Term Loans); (vi) no Interest Period with respect to any Borrowing of Term Loans under a Facility may be elected that would extend beyond any date upon which a Scheduled 8 Repayment or a mandatory repayment is required to be made in respect of such Facility, as the case may be, if, after giving effect to the selection of such Interest Period, the aggregate principal amount of Term Loans maintained as Eurodollar Loans under such Facility with Interest Periods ending after such date would exceed the aggregate principal amount of Term Loans of such Facility permitted to be outstanding after such Scheduled Repayment or mandatory repayment, as the case may be; and (vii) no Interest Period for Eurodollar Loans may be elected at any time when a Default or an Event of Default is then in existence. (b) If upon the expiration of any Interest Period, the Borrower has failed to elect, or is not permitted to elect, a new Interest Period to be applicable to the respective Borrowing of Eurodollar Loans as provided above, the Borrower shall be deemed to have elected to convert such Borrowing into a Borrowing of Base Rate Loans effective as of the expiration date of such current Interest Period. 1.10 Increased Costs, Illegality, etc. (a) In the event that (x) in -------------------------------- the case of clause (i) below, the Agent or (y) in the case of clauses (ii) and (iii) below, any Lender shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining the Eurodollar Rate for any Interest Period that, by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loans (including, without limitation, any such increased costs or reductions in amounts received or receivable as a result of (A) such Lender becoming subject to any tax, duty or other charge with respect to its share of a Eurodollar Loan or (B) changes in the basis of taxation of payments to such Lender of principal and/or interest on its share of a Eurodollar Loan and/or other fees and amounts payable hereunder with respect thereto) because of (x) any change since the date of this Agreement in any applicable law, rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or rule, regulation, guideline or order) (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Eurodollar Rate) and/or (y) other circumstances affecting such Lender, the interbank Eurodollar market or the position of such Lender in such market since the date of this Agreement (or, if such Lender becomes a Lender after the date hereof, since the date such Lender becomes a Lender hereunder); or 9 (iii) at any time, the making or continuance of any Eurodollar Loan has become unlawful by compliance by such Lender in good faith with any law, rule, regulation, guideline (or would conflict with any such rule, regulation, guideline or order not having the force of law but with which such Lender customarily complies even though the failure to comply therewith would not be unlawful), or has become impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Lender (or the Agent in the case of clause (i) above) shall, (A) on such date and (B) within ten Business Days of the date on which such event no longer exists, give notice (by telephone confirmed in writing) to the Borrower and to the Agent of such determination (which notice the Agent shall promptly transmit to each of the other Lenders). Thereafter (A) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given by the Borrower with respect to Eurodollar Loans which have not yet been incurred shall be deemed rescinded by the Borrower, (B) in the case of clause (ii) above, the Borrower shall pay to such Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing the basis for the calculation thereof, submitted to the Borrower by such Lender shall, absent manifest error, be final and conclusive and binding upon all parties hereto) and (C) in the case of clause (iii) above, the Borrower shall take one of the actions specified in Section 1.10(b) as --------------- promptly as possible and, in any event, within the time period required by law. The Borrower shall not be liable to any Lender for any amounts pursuant to clause (ii) above incurred or accruing more than ninety (90) days prior to the submission of any written notice by such Lender. (b) At any time that any Eurodollar Loan is affected by the circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and ---------------------------- in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii), the -------------------- Borrower shall) either (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Agent telephonic notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by a Lender pursuant to Section 1.10(a)(ii) or (iii), or ---------------------------- (ii) if the affected Eurodollar Loan is then outstanding, upon at least three Business Days' notice to the Agent, require the affected Lender to convert each such Eurodollar Loan into a Base Rate Loan, provided, that if more than one -------- Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Section 1.10(b). --------------- (c) If any Lender shall have determined that after the date of this Agreement, the adoption or effectiveness of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the 10 force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy), then from time to time, within 15 days after demand by such Lender (with a copy to the Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. Each Lender, upon determining in good faith that any additional amounts will be payable pursuant to this Section 1.10(c), will give --------------- prompt written notice thereof to the Borrower, which notice shall set forth the basis of the calculation of such additional amounts, although the failure to give any such notice shall not release or diminish any of the Borrower's obligations to pay additional amounts pursuant to this Section 1.10(c) upon the --------------- subsequent receipt of such notice, and shall, absent manifest error, be final and conclusive and binding on all parties hereto. The Borrower shall not be liable to any Lender for any amounts pursuant to this Section incurred or accruing more than ninety (90) days prior to the submission of any written notice by such Lender. 1.11 Compensation. The Borrower shall compensate each Lender, upon ------------ its written request (which request shall set forth the basis for requesting such compensation), for all losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its Eurodollar Loans but not including loss of anticipated profits) which such Lender may sustain: (i) if for any reason (other than a default by such Lender or the Agent) a Borrowing of Eurodollar Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) --------------- if any prepayment, repayment (including any prepayment or repayment made pursuant to Section 4.01 or 4.02 or as a result of an acceleration of the Loans -------------------- pursuant to Section 9) or conversion of any of its Eurodollar Loans occurs on --------- the date which is not the last day of an Interest Period applicable thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of (A) any other default by the Borrower to repay its Eurodollar Loans when required by the terms of this Agreement or (B) an election made pursuant to Section 1.10(b). --------------- 1.12 Change of Lending Office. Each Lender agrees that, upon the ------------------------ occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or ---------------------- (iii), 1.10(c), 2.06 or 4.04 with respect to such Lender, it will, if requested - ---------------------------- by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event, provided that such designation is made on such terms -------- that such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section. Nothing in this Section 1.12 shall ------------ affect or postpone any of the obligations of the Borrower or the right of any Lender provided in Section 1.10, 2.06 or 4.04. -------------------------- 1.13 Replacement of Lenders. Upon the occurrence of any event giving ---------------------- rise to the operation of Section 1.10(a)(ii), Section 1.10(c), Section 2.06 or ----------------------------------------------------- Section 4.04 with respect to any - ------------ 11 Lender which results in such Lender charging to the Borrower increased costs in excess of those being generally charged by the other Lenders, or if a Lender becomes a Defaulting Lender or, in the case of a refusal by a Lender to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by the Required Lenders as provided in Section ------- 12.12, the Borrower shall have the right, if no Default or Event of Default then - ----- exists, to replace such Lender (the "Replaced Lender") with one or more other --------------- Eligible Transferee or Transferees, none of whom shall constitute a Defaulting Lender at the time of such replacement (collectively, the "Replacement Lender") ------------------ acceptable to the Agent, provided that (i) at the time of any replacement -------- pursuant to this Section 1.13, the Replacement Lender shall enter into one or ------------ more Assignment Agreements pursuant to Section 12.04(b) (and with all fees ---------------- payable pursuant to said Section 12.04(b) to be paid by the Replacement Lender) ---------------- pursuant to which the Replacement Lender shall acquire all of the Commitments and outstanding Loans of, and in each case participations in Letters of Credit by, the Replaced Lender and, in connection therewith, shall pay to (A) the Replaced Lender in respect thereof an amount equal to the sum of (1) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender, (2) an amount equal to all Unpaid Drawings that have been funded by (and not reimbursed to) such Replaced Lender, together with all then unpaid interest with respect thereto at such time and (3) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Lender pursuant to Section 3.01 and (B) the Letter of Credit Issuer an amount equal to such - ------------ Replaced Lender's Adjusted Revolving Commitment Percentage of any Unpaid Drawing (which at such time remains an Unpaid Drawing) to the extent such amount was not theretofore funded by such Replaced Lender, and (ii) all obligations of the Borrower owing to the Replaced Lender (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment Agreements, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by the Borrower, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions applicable to the replaced Lender under this Agreement, which shall survive as to such Replaced Lender. SECTION 2. Letters of Credit. ----------------- 2.01 Letters of Credit. (a) Subject to and upon the terms and ----------------- conditions herein set forth, the Borrower may request that a Letter of Credit Issuer at any time and from time to time on or after the Initial Borrowing Date and prior to the Expiry Date issue, for the account of the Borrower and in support of (i) trade obligations of the Borrower and/or its Subsidiaries (each such letter of credit a "Trade Letter of Credit" and, collectively, the "Trade ---------------------- ----- Letters of Credit") and/or (ii) such other obligations of the Borrower that are - ----------------- acceptable to the Agent (each such letter of credit a "Standby Letter of Credit" ------------------------ and, collectively, the "Standby Letters of Credit" and together with the Trade ------------------------- Letters of Credit, the "Letters of Credit"), and subject to and upon the terms ----------------- and conditions herein set forth the Letter of Credit Issuer agrees to issue from time to time, irrevocable letters of credit in such form as may be approved by the Letter of Credit Issuer and the Agent. 12 (b) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued, the Stated Amount of which, when added to the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and prior to the issuance of, the respective Letter of Credit) at such time, would exceed either (A) $5,000,000 or (B) when added to the aggregate principal amount of all Revolving Loans made by Non-Defaulting Lenders and Swingline Loans then outstanding, the lesser of (x) the Borrowing Base or (y) the Adjusted Total Revolving Commitment at such time; and (ii) (A) each Standby Letter of Credit shall have an expiry date occurring not later than one year after such Letter of Credit's date of issuance although any Letter of Credit may be renewable for successive periods of up to 12 months, but not beyond the Business Day sixty days prior to the Expiry Date, on terms acceptable to the Letter of Credit Issuer and in no event shall any Standby Letter of Credit have an expiry date occurring later than the Business Day sixty days prior to the Expiry Date and (B) each Trade Letter of Credit shall have an expiry date occurring no later than the earlier of (x) 180 days after the issuance thereof or (y) 30 days prior to the Expiry Date. (c) Notwithstanding the foregoing, in the event a Lender Default exists, the Letter of Credit Issuer shall not be required to issue any Letter of Credit unless the Letter of Credit Issuer has entered into arrangements satisfactory to it and the Borrower to eliminate the Letter of Credit Issuer's risk with respect to the participation in Letters of Credit of the Defaulting Lender or Lenders, including by cash collateralizing such Defaulting Lender's or Lenders' Revolving Percentage of the Letter of Credit Outstandings. 2.02 Minimum Stated Amount. The initial Stated Amount of each Letter --------------------- of Credit shall not be less than $250,000 or such lesser amount acceptable to the Letter of Credit Issuer and the Agent. 2.03 Letter of Credit Requests; Notices of Issuance. (a) Whenever it ---------------------------------------------- desires that a Letter of Credit be issued, the Borrower shall give the Agent and the Letter of Credit Issuer written notice (including by way of telecopier), in the form of Exhibit 2.03 hereto, prior to 1:00 P.M. (New York time) at least ------------ three Business Days (or such shorter period as may be acceptable to the Letter of Credit Issuer) prior to the proposed date of issuance (which shall be a Business Day) (each a "Letter of Credit Request"), which Letter of Credit ------------------------ Request shall include an application for such Letter of Credit and any other documents that the Letter of Credit Issuer customarily requires in connection therewith. The Agent shall promptly notify each Lender of each Letter of Credit Request. (b) The Letter of Credit Issuer shall, on the date of each issuance of a Letter of Credit by it, give the Agent, each Lender and the Borrower written notice of the issuance of such Letter of Credit, accompanied by a copy to the Agent of the Letter of Credit or Letters of Credit issued by it. 2.04 Agreement to Repay Letter of Credit Drawings. (a) The Borrower -------------------------------------------- hereby agrees to reimburse the Letter of Credit Issuer, by making payment to the Agent at the Payment Office, for any payment or disbursement made by the Letter of Credit Issuer under any Letter of 13 Credit (each such amount so paid or disbursed until reimbursed, an "Unpaid ------ Drawing") immediately after, and in any event on the date on which the Borrower - ------- is notified by the Letter of Credit Issuer of such payment or disbursement with interest on the amount so paid or disbursed by the Letter of Credit Issuer, to the extent not reimbursed prior to 1:00 P.M. (New York time) on the date of such payment or disbursement, from and including the date paid or disbursed to but not including the date the Letter of Credit Issuer is reimbursed therefor at a rate per annum which shall be 1-1/4% in excess of the Base Rate as in effect from time to time (plus an additional 2% per annum if not reimbursed by the third Business Day after the date of such notice of payment or disbursement), such interest also to be payable on demand. (b) The Borrower's obligation under this Section 2.04 to reimburse the ------------ Letter of Credit Issuer with respect to Unpaid Drawings (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against the Letter of Credit Issuer, the Agent or any Lender, including, without limitation, any defense based upon the failure of any drawing under a Letter of Credit to conform to the terms of the Letter of Credit or any non-application or misapplication by the beneficiary of the proceeds of such drawing; provided, however, that the Borrower shall not be -------- ------- obligated to reimburse the Letter of Credit Issuer for any wrongful payment made by the Letter of Credit Issuer under a Letter of Credit as a result of acts or omissions finally determined by a court of competent jurisdiction to have constituted wilful misconduct or gross negligence on the part of the Letter of Credit Issuer. 2.05 Letter of Credit Participations. (a) Immediately upon the ------------------------------- issuance by the Letter of Credit Issuer of any Letter of Credit, the Letter of Credit Issuer shall be deemed to have sold and transferred to each other Revolving Lender, and each such Revolving Lender (each a "Participant") shall be ----------- deemed irrevocably and unconditionally to have purchased and received from such Letter of Credit Issuer, without recourse or warranty, an undivided interest and participation, to the extent of such Lender's Adjusted Revolving Commitment Percentage, in such Letter of Credit, each drawing made thereunder and the obligations of the Borrower under this Agreement with respect thereto (although the Letter of Credit Fee shall be payable directly to the Agent for the account of the Lenders as provided in Section 3.01(b) and the Participants shall have no --------------- right to receive any portion of any Facing Fees) and any security therefor or guaranty pertaining thereto. Upon any change in the Revolving Commitments or Adjusted Revolving Commitment Percentages of the Revolving Lenders pursuant to Section 12.04(b) or upon a Lender Default, it is hereby agreed that, with - ---------------- respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic adjustment to the participations pursuant to this Section 2.05 to ------------ reflect the new Adjusted Revolving Commitment Percentages of the assigning and assignee Lender or of all Revolving Lenders, as the case may be. (b) In determining whether to pay under any Letter of Credit, the Letter of Credit Issuer shall not have any obligation relative to the Participants other than to determine that any documents required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by the Letter of Credit Issuer under or in connection with any Letter of Credit if taken 14 or omitted in the absence of gross negligence or wilful misconduct, shall not create for the Letter of Credit Issuer any resulting liability. (c) In the event that the Letter of Credit Issuer makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to the Letter of Credit Issuer pursuant to Section 2.04(a), the --------------- Letter of Credit Issuer shall promptly notify the Agent, and the Agent shall promptly notify each Participant of such failure, and each Participant shall promptly and unconditionally pay to the Agent for the account of the Letter of Credit Issuer, the amount of such Participant's Adjusted Revolving Commitment Percentage of such payment in Dollars and in same day funds; provided, however, that no Participant shall be obligated to pay to the Agent its Adjusted Revolving Commitment Percentage of such unreimbursed amount for any wrongful payment made by the Letter of Credit Issuer under a Letter of Credit as a result of acts or omissions finally determined by a court of competent jurisdiction to have constituted wilful misconduct or gross negligence on the part of the Letter of Credit Issuer. If the Agent so notifies any Participant required to fund an Unpaid Drawing under a Letter of Credit prior to 11:00 A.M. (New York time) on any Business Day, such Participant shall make available to the Agent for the account of the Letter of Credit Issuer such Participant's Adjusted Revolving Commitment Percentage of the amount of such payment on such Business Day in same day funds. If and to the extent such Participant shall not have so made its Adjusted Revolving Commitment Percentage of the amount of such Unpaid Drawing available to the Agent for the account of the Letter of Credit Issuer, such Participant shall pay interest on such amount from such date until the date such amount is paid to the Agent for the account of the Letter of Credit Issuer at the overnight Federal Funds Effective Rate. The failure of any Participant to make available to the Agent for the account of the Letter of Credit Issuer its Adjusted Revolving Commitment Percentage of any Unpaid Drawing under any Letter of Credit shall not relieve any other Participant of its obligation hereunder to make available to the Agent for the account of the Letter of Credit Issuer its Adjusted Revolving Commitment Percentage of any payment under any Letter of Credit on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to the Agent for the account of the Letter of Credit Issuer such other Participant's Adjusted Revolving Commitment Percentage of any such payment. (d) Whenever the Letter of Credit Issuer receives a payment of a reimbursement obligation as to which the Agent has received for the account of the Letter of Credit Issuer any payments from the Participants pursuant to clause (c) above, the Letter of Credit Issuer shall pay to the Agent and the Agent shall promptly pay to each Participant which has paid its Adjusted Revolving Commitment Percentage thereof, in Dollars and in same day funds, an amount equal to such Participant's Adjusted Revolving Commitment Percentage of the principal amount thereof and interest thereon accruing at the overnight Federal Funds Effective Rate after the purchase of the respective participations. (e) The obligations of the Participants to make payments to the Agent for the account of the Letter of Credit Issuer with respect to Letters of Credit shall be irrevocable and not subject to counterclaim, setoff or other defense or any other qualification or exception whatsoever (provided that no Participant --------- shall be required to make payments resulting from the Letter of Credit 15 Issuer's gross negligence or wilful misconduct) and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents: (ii) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Agent, the Letter of Credit Issuer, any Lender or other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; or (v) the occurrence of any Default or Event of Default. (f) To the extent the Letter of Credit Issuer is not indemnified by the Borrower, the Participants will reimburse and indemnify the Letter of Credit Issuer, in proportion to their respective "percentages" of the Total Revolving Commitment, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Letter of Credit Issuer in performing its respective duties in any way relating to or arising out of its issuance of Letters of Credit; provided, however, that no Participant shall be liable for any portion of such - -------- -------- liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements finally determined by a court of competent jurisdiction to have resulted from the Letter of Credit Issuer's gross negligence or wilful misconduct. 2.06 Increased Costs. If at any time after the date of this --------------- Agreement, the adoption or effectiveness of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Letter of Credit Issuer or any Lender with any request or directive (whether or not having the force of law) by any such authority, central bank or comparable agency shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against Letters of Credit issued by the Letter of Credit Issuer or such Lender's participation therein, or (ii) shall impose on the Letter of Credit Issuer or any Lender any other conditions affecting this Agreement, any Letter of Credit or such Lender's 16 participation therein; and the result of any of the foregoing is to increase the cost to the Letter of Credit Issuer or such Lender of issuing, maintaining or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by the Letter of Credit Issuer or such Lender hereunder (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 taxes or similar charges), then, upon demand to the Borrower by the Letter of Credit Issuer or such Lender (a copy of which notice shall be sent by the Letter of Credit Issuer or such Lender to the Agent), the Borrower shall pay to the Letter of Credit Issuer or such Lender such additional amount or amounts as will compensate the Letter of Credit Issuer or such Lender for such increased cost or reduction. A certificate submitted to the Borrower by the Letter of Credit Issuer or such Lender, as the case may be (a copy of which certificate shall be sent by the Letter of Credit Issuer or such Lender to the Agent), setting forth the basis for the determination of such additional amount or amounts necessary to compensate the Letter of Credit Issuer or such Lender as aforesaid shall be conclusive and binding on the Borrower absent manifest error, although the failure to deliver any such certificate shall not release or diminish any of the Borrower's obligations to pay additional amounts pursuant to this Section 2.06 ------------ upon the subsequent receipt thereof. The Borrower shall not be liable to any Lender for any amounts pursuant to this Section incurred or accruing more than ninety (90) days prior to the submission of any written notice by such Lender. SECTION 3. Fees; Commitments. ----------------- 3.01 Fees. (a) The Borrower agrees to pay to the Agent a commitment ---- fee ("Commitment Fee") for the account of each Non-Defaulting Lender with a -------------- Revolving Commitment for the period from and including the date of this Agreement to, but not including, the date the Total Revolving Commitment has been terminated, computed at a rate for each day equal to 1/2 of 1% per annum on the daily average of such Lender's Unutilized Revolving Commitment. Such Commitment Fee shall be due and payable in arrears on the first calendar day of each April, July, October and January and on the date upon which the Total Revolving Commitment is terminated. (b) The Borrower agrees to pay to the Agent for the account of each Non-Defaulting Lender pro rata on the basis of their respective Adjusted --- ---- Revolving Commitment Percentages, a fee in respect of each Letter of Credit (the "Letter of Credit Fee") computed at the rate equal to the Applicable Eurodollar -------------------- Margin then in effect with respect to Revolving Loans on the average daily Stated Amount of such Letter of Credit. Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on the first calendar day of each April, July, October and January and on the date upon which the Total Revolving Commitment is terminated. During the continuance of any Default, upon notice given to the Borrower by the Required Lenders pursuant to Section 1.08(c), the --------------- Letter of Credit Fees shall be computed at the rate equal to the Applicable Eurodollar Margin then in effect with respect to Revolving Loans (regardless of the fact that the Borrower may not be able to request Eurodollar Loans) plus 2%. (c) The Borrower agrees to pay to the Agent for the account of the Letter of Credit Issuer a fee in respect of each Letter of Credit (the "Facing ------ Fee") computed at the rate of one-quarter of 1% on the Stated Amount of such - --- Letter of Credit, provided, that in no event shall the -------- 17 Facing Fee be less than $500. Accrued Facing Fees shall be due and payable quarterly in arrears on the first calendar day of each April, July, October and January and on the date upon which the Total Revolving Commitment is terminated. (d) The Borrower agrees to pay directly to the Letter of Credit Issuer upon each issuance of, drawing under, and/or amendment of, a Letter of Credit such amount as shall at the time of such issuance, drawing or amendment be the administrative charge which the Letter of Credit Issuer is customarily charging for issuances of, drawings under or amendments of, letters of credit issued by it. (e) The Borrower shall pay (i) to Fleet on the Effective Date for its own account and/or for distribution to the Lenders as determined by Fleet in its sole discretion, such fees as heretofore separately agreed by the Borrower and Fleet pursuant to the letter agreements dated as of December 23, 1996 and the date hereof executed by them (the "Fee Letters") and (ii) to the Agent on the ----------- Effective Date and on each anniversary thereof for its own account such fees as separately agreed to between the Borrower and the Agent pursuant to the Fee Letters. (f) All computations of Fees shall be made in accordance with Section ------- 12.07(b). - -------- 3.02 Voluntary Reduction of Commitments. Upon at least three Business ---------------------------------- Days' prior written notice (or telephonic notice confirmed in writing) to the Agent at its Notice Office (which notice the Agent shall promptly transmit to each of the Lenders), the Borrower shall have the right, without premium or penalty, to terminate or partially reduce the Total Unutilized Revolving Commitment; provided, however, that (i) any such termination shall apply to -------- ------- proportionately and permanently reduce the Revolving Commitment of each Lender, (ii) no such reduction shall reduce any Non-Defaulting Lender's Revolving Commitment to an amount that is less than the sum of (A) the outstanding Revolving Loans of such Lender plus (B) such Lender's Adjusted Revolving Commitment Percentage of outstanding Swingline Loans and of Letter of Credit Outstandings and (iii) any partial reduction pursuant to this Section 3.02 shall ------------ be in the amount of at least $1,000,000, and, if greater, shall be in an integral multiple of $100,000. 3.03 Mandatory Adjustments of Commitments, etc. (a) The Total ----------------------------------------- Commitment (and the A Term Commitment, B Term Commitment and Revolving Commitment of each Lender) shall terminate on the Expiration Date unless the Initial Borrowing Date has occurred on or before such date. (b) Each of the Total A Term Commitment and Total B Term Commitment shall terminate in its entirety on the Initial Borrowing Date (after giving effect to the making of the A Term Loans and B Term Loans on such date). The Total Revolving Commitment (and the Revolving Commitment of each Revolving Lender) shall terminate on the Expiry Date. (c) Any partial reduction of the Total Revolving Commitment pursuant to this Section 3.03 shall apply proportionately to the Revolving Commitment of ------------ each Revolving Lender. 18 SECTION 4. Payments. -------- 4.01 Voluntary Prepayments. The Borrower shall have the right to --------------------- prepay Loans in whole or in part, without premium or penalty, from time to time on the following terms and conditions: (i) the Borrower shall give the Agent at the Payment Office written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay the Loans, whether such Loans are A Term Loans, B Term Loans, Revolving Loans or Swingline Loans, the amount of such prepayment and (in the case of Eurodollar Loans) the specific Borrowing(s) pursuant to which made, which notice shall be given by the Borrower at least five Business Days prior to the date of such prepayment (other than Revolving Loans with respect to which notice shall be given by the Borrower at least three Business Days prior to the date of prepayment for Revolving Loans which are Eurodollar Loans and one Business Day for Revolving Loans which are Base Rate Loans, and Swingline Loans, with respect to which notice shall be given by the Borrower on the day of prepayment), which notice shall promptly be transmitted by the Agent to each of the Lenders, provided that no notice shall be required with respect -------- to any prepayments made with funds received by the Agent from the Blocked Accounts (such funds, "Blocked Account Proceeds") as provided in Section 4.05, ------------------------ ------------ which funds shall be applied by the Agent on a daily basis or such other frequency as the Agent may determine, (ii) each partial prepayment of any Borrowing (other than any Borrowing of Swingline Loans or a Borrowing of Revolving Loans that is prepaid solely with Blocked Account Proceeds) shall be in an aggregate principal amount of at least $1,000,000 and, if greater in an integral multiple of $100,000, provided that no partial prepayment of Eurodollar -------- Loans made pursuant to a Borrowing shall reduce the aggregate principal amount of the Loans outstanding pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto; (iii) at the time of any prepayment of Eurodollar Loans pursuant to this Section 4.01 on any date other than the ------------ last day of the Interest Period applicable thereto, the Borrower shall pay the amounts required pursuant to Section 1.11; (iv) each prepayment in respect of ------------ any Loans made pursuant to a Borrowing shall be applied pro rata among such --- ---- Loans, provided that (A) at the Borrower's election in connection with any -------- prepayment of Revolving Loans pursuant to this Section 4.01, such prepayment ------------ shall not be applied to any Revolving Loans of a Defaulting Lender, and (B) Blocked Account Proceeds shall be applied first to prepay any outstanding ----- Swingline Loans and second to prepay any outstanding Revolving Loans, and, with ------ respect to such Revolving Loans, first to prepay any Base Rate Loans and second ----- ------ to prepay any Eurodollar Loans; and (v) each prepayment of Term Loans pursuant to this Section 4.01 shall be applied to A Term Loans (in an amount equal to the ------------ A Term Loan Percentage of such prepayment) and B Term Loans (in an amount equal to the B Term Loan Percentage of such prepayment) and shall be applied first 50% ----- to reduce the remaining Scheduled Repayments of each of the A Term Loans and B Term Loans pro rata (with each Scheduled Repayment of the A Term Loan or B Term --- ---- Loan as the case may be being prepaid by an amount equal to the product of 50% of the prepayment amount applicable to the A Term Loan or B Term Loan multiplied by a fraction the numerator of which is the Scheduled Repayment (as reduced by prepayments previously made) and the denominator of which shall be the remaining unpaid balance of the A Term Loans or the B Term Loans, as the case may be) and second 50% to reduce the remaining Scheduled Repayments of each of the A Term - ------ Loans and the B Term Loans in the inverse order of their maturity. 19 4.02 Mandatory Prepayments. --------------------- (A) Requirements: ------------ (a) (i) If on any date (i) the sum of the aggregate outstanding principal amount of Revolving Loans made by Non-Defaulting Lenders, Swingline Loans and the Letter of Credit Outstandings exceeds the Adjusted Total Revolving Commitment as then in effect or (ii) the aggregate outstanding principal amount of all Revolving Loans and of all Swingline Loans and the Letter of Credit Outstandings shall have exceeded the Borrowing Base at such time, the Borrower shall repay on such date the principal of Swingline Loans, and if no Swingline Loans are or remain outstanding, Revolving Loans of Non-Defaulting Lenders, in an aggregate amount equal to such excess. If, after giving effect to the repayment of all outstanding Swingline Loans and Revolving Loans of Non- Defaulting Lenders, the aggregate amount of Letter of Credit Outstandings exceeds the lesser of the Borrowing Base or the Adjusted Total Revolving Commitment then in effect, the Borrower shall pay to the Agent an amount in cash and/or Cash Equivalents equal to such excess (up to the aggregate amount of the Letter of Credit Outstandings at such time) and the Agent shall hold such payment as security for the obligations of the Borrower hereunder pursuant to a cash collateral agreement to be entered into in form and substance satisfactory to the Agent (which shall permit certain investments in Cash Equivalents satisfactory to the Agent, until the proceeds are applied to the secured obligations). (ii) If on any date the aggregate outstanding principal amount of the Revolving Loans made by a Defaulting Lender exceeds the Revolving Commitment of such Defaulting Lender, the Borrower shall repay principal of Revolving Loans of such Defaulting Lender in an amount equal to such excess. (b) (i) On each date set forth below, the Borrower shall be required to repay the principal amount of A Term Loans set forth opposite such date (each such repayment, together with each repayment of B Term Loans required by clause (b)(ii) below, a "Scheduled Repayment"): -------------------
- ------------------------------------------------------- Repayment Date Amount - ------------------------------------------------------- June 30, 1997 $ 500,000 - ------------------------------------------------------- September 30, 1997 $ 500,000 - ------------------------------------------------------- December 31, 1997 $ 500,000 - ------------------------------------------------------- March 31, 1998 $ 500,000 - ------------------------------------------------------- June 30, 1998 $1,000,000 - ------------------------------------------------------- September 30, 1998 $1,000,000 - ------------------------------------------------------- December 31, 1998 $1,000,000 - ------------------------------------------------------- March 31, 1999 $1,000,000 - -------------------------------------------------------
20
- ------------------------------------------------------- Repayment Date Amount - ------------------------------------------------------- June 30, 1999 and each September 30, December 31, March 31 and June 30 thereafter to and including December 31, 2001 $2,000,000 - ------------------------------------------------------- Expiry Date $2,000,000 or the then outstanding principal amount of A Term Loans - -------------------------------------------------------
The above Scheduled Repayments may be reduced in accordance with Sections 4.01 ------------- and 4.02(A)(c), (d), (e) and (f). - -------------------------------- (ii) The Borrower shall be required to repay the principal amount of B Term Loans on each date set forth below as set forth opposite such date:
- ------------------------------------------------------- Repayment Date Amount - ------------------------------------------------------- June 30, 1997 and each $ 75,000 September 30, December 31, March 31 and June 30 thereafter to and including March 31, 2002 - ------------------------------------------------------- June 30, 2002 $3,500,000 - ------------------------------------------------------- September 30, 2002 $3,500,000 - ------------------------------------------------------- December 31, 2002 $3,500,000 - ------------------------------------------------------- March 31, 2003 $3,500,000 - ------------------------------------------------------- June 30, 2003 $7,250,000 - ------------------------------------------------------- Final Maturity Date $7,250,000 or the then outstanding principal amount of B Term Loans - -------------------------------------------------------
The above Scheduled Repayments may be reduced in accordance with Sections 4.01 ------------- and 4.02(A)(c), (d), (e) and (f). - -------------------------------- (c) On the tenth day following the date of receipt thereof by the Borrower and/or any of its Subsidiaries of the Cash Proceeds from any Asset Sale, an amount equal to 100% of the Net Cash Proceeds from such Asset Sale shall be applied first as a mandatory repayment of principal of the then ----- outstanding Term Loans (with the A Term Loan Percentage of such Net Cash Proceeds applied as a prepayment of the outstanding principal amount of A Term Loans and the B Term Loan 21 Percentage of such Net Cash Proceeds applied as a prepayment of the outstanding principal amount of B Term Loans) and second, after the Term Loans have been ------ paid in full and are no longer outstanding, as a mandatory repayment of principal of the then outstanding Revolving Loans, provided that up to an aggregate of $150,000 per fiscal year but not to exceed $300,000 of Net Cash Proceeds from Asset Sales from the Effective Date through the Final Maturity Date shall not be required to be used to so repay Term Loans to the extent the Borrower elects, as hereinafter provided, to cause such Net Cash Proceeds to be reinvested in Reinvestment Assets (a "Reinvestment Election"). The Borrower may --------------------- exercise its Reinvestment Election (within the parameters specified in the preceding sentence) with respect to an Asset Sale if (i) no Default or Event of Default exists and (ii) the Borrower delivers a Reinvestment Notice to the Agent on the Business Day following the date of the consummation of the respective Asset Sale, with such Reinvestment Election being effective with respect to the Net Cash Proceeds of such Asset Sale equal to the Anticipated Reinvestment Amount specified in such Reinvestment Notice. (d) Subsequent to the Initial Borrowing Date, on the tenth day following the receipt thereof by the Borrower, an amount equal to 100% of the proceeds (net of underwriting discounts and commissions and other reasonable costs associated therewith) of any sale or issuance of equity of the Borrower (other than sales of equity to directors, officers and employees of the Borrower) and 100% of any amount of cash received by the Borrower in connection with any capital contributions shall be applied first as a mandatory repayment ----- of principal of the then outstanding Term Loans (with the A Term Loan Percentage of such proceeds applied as a prepayment of the outstanding principal amount of A Term Loans and the B Term Loan Percentage of such proceeds applied as a prepayment of the outstanding principal amount of B Term Loans) and second, ------ after the Term Loans have been paid in full and are no longer outstanding, as a mandatory repayment of principal of the then outstanding Revolving Loans. (e) Together with the delivery of the financial statements pursuant to Section 7.01(a) and in any event not later than 90 days after the last day of each fiscal year of the Borrower (commencing with the fiscal year ending on March 31, 1998), 100% of Excess Cash Flow for the Borrower's fiscal years ending March 31, 1998 and March 31, 1999 and 75% of Excess Cash Flow for each fiscal year of Borrower ending subsequent to March 31, 1999 (such amount the "ECF --- Prepayment Amount") of the Borrower and its Subsidiaries for the fiscal year - ----------------- then last ended shall be applied first as a mandatory repayment of principal of ----- the then outstanding Term Loans (with the A Term Loan Percentage of such ECF Prepayment Amount applied as a prepayment of the outstanding principal amount of A Term Loans and the B Term Loan Percentage of such ECF Prepayment Amount applied as a prepayment of the outstanding principal amount of B Term Loans) and second, after the Term Loans have been paid in full and are no longer - ------ outstanding, as a mandatory repayment of principal of the then outstanding Revolving Loans. (f) On the Reinvestment Prepayment Date with respect to a Reinvestment Election, an amount equal to the Reinvestment Prepayment Amount, if any, for such Reinvestment Election shall be applied first as a repayment of the ----- principal amount of the then outstanding Term Loans (with the A Term Loan Percentage of such Reinvestment Prepayment Amount applied as a prepayment of the outstanding principal amount of A Term Loans and the B Term Loan Percentage 22 of such Reinvestment Prepayment Amount applied as a prepayment of the outstanding principal amount of B Term Loans) and second, after the Term Loans ------ have been paid in full and are no longer outstanding, as a mandatory repayment of principal of the then outstanding Revolving Loans. (g) Notwithstanding anything to the contrary contained elsewhere in this Agreement, (i) all then outstanding Swingline Loans shall be repaid in full on the Swingline Expiry Date and (ii) all then outstanding Revolving Loans shall be repaid in full on the Expiry Date. (B) Application: ----------- (a) Each mandatory repayment of A Term Loans and B Term Loans required to be made pursuant to Sections 4.02(A) (other than pursuant to clause (b) ---------------- thereof) shall be applied to reduce the Scheduled Repayments of A Term Loans and B Term Loans, respectively, on a pro rata basis (based upon the then remaining --- ---- outstanding principal amount of each such Scheduled Repayments of A Term Loans and B Term Loans, respectively), with any such repayment applied first 50% to ----- reduce the remaining Scheduled Repayments of each of the A Term Loans and the B Term Loans pro rata (with each Scheduled Repayment of the A Term Loan or B Term --- ---- Loan as the case may be being prepaid by an amount equal to the product of 50% of the prepayment amount applicable to the A Term Loan or B Term Loan, multiplied by a fraction the numerator of which is the Scheduled Repayment (as reduced by prepayments previously made) and the denominator of which shall be the remaining unpaid balance of the A Term Loans or the B Term Loans, as the case may be) and second 50% to reduce the then remaining Scheduled Repayments of ------ each of the A Term Loans and the B Term Loans in the inverse order of their maturity. (b) With respect to each prepayment of Loans required by Section 4.02, ------------ the Borrower may designate the Types of Loans which are to be prepaid and the specific Borrowing(s) under the affected Facility pursuant to which made; provided however, that (i) Eurodollar Loans may so be designated for prepayment - -------- ------- pursuant to this Section 4.02 only on the last day of an Interest Period ------------ applicable thereto unless all Eurodollar Loans made pursuant to such Facility with Interest Periods ending on such date of required prepayment and all Base Rate Loans made pursuant to such Facility have been paid in full; (ii) if any prepayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount for such Borrowing, such Borrowing shall be immediately converted into Base Rate Loans; (iii) each prepayment of any Revolving Loans made by Non-Defaulting Lenders pursuant to a Borrowing shall be applied pro rata --- ---- among such Revolving Loans; and (iv) each prepayment of any Revolving Loans made by Defaulting Lenders pursuant to a Borrowing shall be applied pro rata among --- ---- such Revolving Loans. In the absence of a designation by the Borrower as described in the preceding sentence, the Agent shall, subject to the above and Section 4.02(B)(c), make such designation. - ------------------ (c) In the event that the amount of any required prepayment of Loans under Section 4.01 with respect to prepayments from Blocked Account Proceeds or ------------ under this Section 4.02 exceeds the aggregate principal amount of the then ------------ respective outstanding Term Loans, Revolving Loans or Swingline Loans, as the case may be, being prepaid which consist of Base Rate Loans (the 23 amount of any such excess being called the "Excess Amount"), the Borrower shall ------------- have the right, in lieu of making such prepayment in full, to prepay such outstanding Base Rate Loans and to deposit an amount equal to the Excess Amount with the Agent in a cash collateral account maintained by and in the sole dominion and control of the Agent for the ratable benefit of the Lenders holding Term Loans or Revolving Loans entitled thereto. Any amount so deposited shall be held by the Agent as collateral for the Obligations and applied to the prepayment of Eurodollar Loans at the end of the current Interest Period(s) applicable thereto. On any day on which collected amounts remain on deposit in or to the credit of such cash collateral account after giving effect to the payment made on such day pursuant to such Section 4.01 or 4.02 and the Borrower -------------------- shall have delivered to the Agent a written request or a telephonic request (which shall be promptly confirmed in writing) prior to 11:00 A.M. (New York time) that such remaining collected amounts be invested in Cash Equivalents specified in such request, the Agent shall invest such funds, to the extent the Agent is reasonably able to do so, in such Cash Equivalents (as are acceptable to, and with no risk to, the Agent) on an overnight basis or with maturities such that amounts will be available to pay the Obligations secured thereby as they become due, whether at maturity, by acceleration or otherwise; provided, -------- however, that any loss resulting from such investments shall be charged to and - ------- be immediately payable by the Borrower upon demand by the Agent. (d) In the event the Borrower gives notice of a prepayment of Term Loans pursuant to Section 4.01 or the Borrower is required to make a mandatory ------------ prepayment of Term Loans pursuant to Section 4.02(A)(c), (d), (e) or (f), the ----------------------------------- Borrower shall give a notice of prepayment not less than five Business Days prior to the date of any such prepayment and each Lender holding a B Term Loan shall have the right by notice given to the Borrower and the Agent not later than three Business Days prior to the date of any such prepayment to notify the Borrower that it declines to participate in such prepayment (each such lender, a "Declining Lender"). The Borrower may by notice to the Declining Lenders and ---------------- the Agent delivered not later than two Business Days prior to the date of any such prepayment elect to require all of the Declining Lenders to participate in such prepayment. In the event the Borrower does not send the notice provided for in the previous sentence, then the payments which would otherwise have been applied to the B Term Loans of each Declining Lender shall instead be applied to the A Term Loans and to the Scheduled Repayments thereof in inverse order of their maturity. 4.03 Method and Place of Payment. Except as otherwise specifically --------------------------- provided herein, all payments under this Agreement shall be made to the Agent for the ratable (based on its pro rata share) account of the Lenders entitled --- ---- thereto, not later than 1:00 P.M. (New York time) on the date when due and shall be made in immediately available funds and in Dollars and the Payment Office, it being understood that written notice by the Borrower to the Agent to make a payment from the funds in the Borrower's account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account. Any payments under this Agreement which are made later than 1:00 P.M. (New York time) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension. Together with 24 each prepayment of the Term Loans the Agent shall provide the Borrower and the Lenders with an accounting of the application to the A Term Loan and the B Term Loan and the remaining amounts of Scheduled Repayments. 4.04 Net Payments. (a) All payments made by, or on behalf of, the ------------ Borrower hereunder, under any Note or any other Loan Document, will be made without setoff, counterclaim or other defense. Except as provided for in Section 4.04(b), all such payments will be made free and clear of, and without - --------------- deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein (but excluding any tax imposed on or measured by the net income (or any franchise tax) of a Lender pursuant to the laws of the jurisdiction in which the principal office or applicable lending office of such Lender is located or under the laws of which such Lender is organized or under the laws of any political subdivision or taxing authority of any such jurisdiction in which the principal office or applicable lending office of such Lender is located) and all interest, penalties or similar liabilities with respect thereto (collectively, "Taxes"). If any Taxes are so levied or imposed ----- or required to be withheld, the Borrower agrees to pay the full amount of such Taxes and, if any, such additional amounts ("Additional Amounts") as may be ------------------ necessary so that every payment of all amounts due hereunder, under any Note or under any other Loan Document, after withholding or deduction for or on account of any Taxes and such Additional Amounts, will not be less than the amount provided for herein or in such Note or in such other Loan Document. The Borrower will indemnify and hold harmless the Agent and each Lender, and reimburse the Agent or such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid or withheld by the Agent or such Lender with respect to any payment (including, without limitation, any payment of Additional Amounts) to be made by the Borrower under any Note or any other Loan Document. Notwithstanding anything in this Section 4.04, the Borrower shall ------------ only be required to pay any Additional Amounts for the account of any Lender, if such Taxes arise by reason of changes in applicable tax law, regulation, rule, guideline, order or income tax treaty, or in the official interpretation of any thereof, from and after the date such Lender becomes a "Lender" under this Agreement; provided, however, that the Borrower shall not be required to pay any -------- ------- Additional Amounts, or indemnify or reimburse any Lender, in respect of, against or for any Taxes imposed as a result of such Lender's failure to comply with Section 4.04(b). The Borrower will furnish to the Agent within 45 days after - --------------- the date the payment of any Taxes, or any withholding or deduction on account thereof, is due pursuant to applicable law certified copies of tax receipts evidencing such payment by the Borrower. (b) Each Lender, which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes agrees to provide to the Borrower on or prior to the Initial Borrowing Date or, in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 12.04 (unless the respective Lender was ------------- already a Lender hereunder immediately prior to such assignment or transfer), upon the date of such assignment or transfer to such Lender, two original signed copies of Internal Revenue Service Form 4224 or Form 1001 or, in the case of a Lender claiming exemption from United States withholding tax under Section 871(h) or 881(c) of the Code with respect to "portfolio interest," a Form W-8 or any other successor tax form acceptable to the Agent and the Borrower (and, if such 25 Lender delivers a Form W-8, a certificate representing that such Lender is not a bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), in each case certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement, under any Note and under any other Loan Document. Each Lender which so delivers such Form 1001, Form 4224 or Form W-8 (or any successor forms), as the case may be, further agrees to deliver to the Borrower and the Agent two original signed copies of Form 1001, Form 4224 or Form W-8, as the case may be, before the date that the previously delivered form expires or becomes obsolete or prior to the occurrence of any event requiring a change in the most recent form so delivered, and such amendment thereto or extensions or renewal thereof as may be reasonably requested by the Borrower or the Agent, in each case, certifying to such Lender's entitlement to a complete exemption from, or reduction in, United States withholding tax with respect to payments to be made under this Agreement, under any Note and under any other Loan Document. Notwithstanding anything to the contrary contained in Section 4.04(a), the Borrower and the Agent shall be --------------- entitled, to the extent it is required to do so by law to deduct or withhold income or other similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest fees or other amounts payable hereunder (without any obligation under Section 4.04(a) to pay --------------- the respective Lender such taxes or any Additional Amounts with respect thereto) for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for United States federal income tax purposes and which has not provided to the Borrower and the Agent such forms required to be provided to the Borrower and the Agent by a Lender pursuant to the first sentence of this Section 4.04(b), provided, that if the Borrower or --------------- -------- the Agent shall so deduct or withhold any such taxes, it shall provide to such Lender certified copies of tax receipts evidencing such payment by the Borrower or the Agent. Notwithstanding anything to the contrary contained in the preceding sentence, the Borrower agrees to indemnify each Lender in the manner set forth in Section 4.04(a) in respect of any amounts deducted or withheld by --------------- it as described in the previous sentence (A) as a result of any changes after the date of this Agreement in any applicable law, treaty, rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of income or similar Taxes (provided that each such Lender shall at the Borrower's reasonable request provide to the Borrower any applicable tax form or certificate necessary or appropriate for any exemption of the United States withholding tax or the reduction in the rate of such withholding tax), (B) to the extent the indemnity payment or Additional Amounts are to be paid to a transferee of a Lender who became a transferee at the request of the Borrower, or (C) to the extent the indemnity payment or Additional Amounts that any transferee from a Lender would be entitled to receive hereunder (without regard to this Section 4.04(b)) do not exceed the indemnity payment or Additional Amounts that the Lender who made the transfer of its interests to such transferee would have been entitled to receive in the absence of such transfer. Notwithstanding any other provision of this Section 4.04(b), a Lender shall not be required to deliver any form pursuant to this Section 4.04(b) that such Lender is not legally able to deliver. (c) The Borrower agrees to pay, and to indemnify each Lender and the Agent for any liability with respect to, any current or future or documentary taxes or any other excise or 26 property taxes, charges or similar levies (including, without limitation, mortgage recording taxes and similar fees) that arise from any payment made under this Agreement, any Note or under any other Loan Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, any Note or any other Loan Document ("Other Taxes"). ----------- (d) The Borrower will indemnify each Lender and the Agent for the full amount of Taxes (without duplication of Section 4.04(a)) and Other Taxes paid by --------------- such Lender or the Agent, as the case may be, and any liability (including penalties, interest and expenses (including reasonable attorney's fees and expenses)) arising therefrom or with respect thereto, whether or not such Taxes (without duplication of Section 4.04(a)) or Other Taxes were correctly or --------------- legally asserted by the relevant governmental authority. A certificate as to the amount of such payment or liability prepared by the Lender or the Agent, absent manifest error, shall be final, conclusive and binding for all purposes. Such indemnification shall be made within 30 days after the date any Lender or the Agent, as the case may be, makes written demand therefor. (e) Nothing contained in this Section 4.04 shall require any Lender or the Agent (or any transferee) to make available any of its tax returns (or any other information that it deems to be confidential or proprietary). 4.05 Blocked Accounts. At the request of the Agent which may be made ---------------- at any time upon the occurrence and for so long as an Event of Default is continuing, the Borrower shall establish blocked account arrangements and depository accounts (collectively, the "Blocked Accounts") with such depository ---------------- institutions that receive payments or remittances with respect to the Borrower's or any Subsidiary's Accounts, or such other depository institutions as the Agent may determine, pursuant to blocked account agreements and subject to irrevocable instructions in form and substance satisfactory to the Agent, and in which the Borrower shall immediately deposit all payments made for Inventory or other payments constituting proceeds of Collateral (including, without limitation, remittances with respect to the Borrower's or any Subsidiary's Accounts) in the identical form in which such payment is made, whether by cash, check or otherwise, duly endorsed for collection, if necessary. Pursuant to the aforementioned irrevocable instructions and blocked account agreements, all amounts held or deposited in the Blocked Accounts, upon collection of good funds in such Blocked Accounts, shall be wire transferred (or, at the Agent's election, transferred via ACH) to the Agent at its Payment Office as Agent may specify in writing and, upon becoming available funds, shall be applied first to pay any Obligations (other than principal or interest on the ----- Loans) then due and payable and second to reduce the then outstanding principal ------ balance of Swingline Loans and Revolving Loans pursuant to Section 4.01. If at ------------ any time the then outstanding balance of Swingline Loans and Revolving Loans shall be zero and no other Obligations are then due and payable, the Agent shall, on the Business Day following the Borrower's request, pay over to the Borrower amounts received by the Agent from the Blocked Accounts constituting available funds in excess of Obligations then due and payable (provided, that if a Default or an Event of Default shall have occurred and then be continuing, such amounts shall also be in excess of all Letter of Credit Outstandings and other outstanding Obligations, whether or not then due and payable). 27 Subject to the foregoing, the Borrower hereby agrees and each depository institution shall, at the Agent's request, acknowledge that all payments received by the Agent or any Lender, whether by cash, check, wire transfer or any other instrument, made to such Blocked Accounts or otherwise received by the Agent or any Lender and whether on the Accounts or as proceeds of other Collateral or otherwise will be the sole and exclusive property of the Agent and the Lenders and such depository institution has no right of setoff against the Blocked Accounts. The Borrower, and any Affiliates and any employees, agents or other Persons acting for or in concert with the Borrower or any Affiliates, shall, acting as trustee for the Agent and the Lenders, receive, as the sole and exclusive property of the Lenders, any monies, checks, notes, drafts or any other payments relating to and/or proceeds of Accounts or other Collateral which come into the possession or under the control of the Borrower or any Affiliates or any employees, agents or other Persons acting for or in concert with the Borrower or any Affiliate, and immediately upon receipt thereof, the Borrower or such Persons shall deposit the same or cause the same to be deposited, in kind, in a Blocked Account. SECTION 5. Conditions Precedent. The obligation of the Lenders to -------------------- make each Loan hereunder (excluding Mandatory Borrowings made after the Initial Borrowing Date, which shall be made as provided in Section 1.01(e), and the --------------- obligation of the Letter of Credit Issuer to issue Letters of Credit hereunder, is subject, at the time of each such Credit Event (except as otherwise hereinafter indicated), to the satisfaction of each of the following conditions: 5.01 Execution of Agreement; Notes. On or prior to the Initial ----------------------------- Borrowing Date, (i) this Agreement shall have become effective as provided in Section 12, 10 and (ii) there shall have been delivered to the Agent for the - -------------- account of each Lender the appropriate A Term Note, B Term Note and/or Revolving Note and, in the case of Fleet, the Swingline Note, in each case, executed by the Borrower, and in the amount, maturity and as otherwise provided herein. 5.02 No Default; Representations and Warranties. At the time of each ------------------------------------------ Credit Event and also after giving effect thereto, (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained herein or in the other Loan Documents in effect at such time shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Credit Event, except to the extent that such representations and warranties expressly relate to a specified date. 5.03 Notice of Borrowing; Letter of Credit Request; Etc. (a) Prior -------------------------------------------------- to the making of each Loan (excluding Swingline Loans), the Agent shall have received a Notice of Borrowing meeting the requirements of Section 1.03(a). --------------- Prior to the making of any Swingline Loan, Fleet shall have received the notice required by Section 1.03(b)(i). ------------------ (b) Prior to the issuance of each Letter of Credit, the Agent and the respective Letter of Credit Issuer shall have received a Letter of Credit Request meeting the requirements of Section 2.03, and the respective Letter of ------------ Credit Issuer shall have received any documentation requested by it in connection with the issuance of the respective Letter of Credit. 28 5.04 Officer's Certificate. On the Initial Borrowing Date, the Agent --------------------- shall have received a certificate dated such date signed by the President or the Chief Financial Officer of the Borrower stating that all of the applicable conditions set forth in Sections 5.02, 5.07, 5.08, 5.09, 5.10, 5.11, 5.12 and ----------------------------------------------------- 5.13, have been fully satisfied on such date. - ---- 5.05 Opinions of Counsel. On the Initial Borrowing Date, the Agent ------------------- shall have received opinions, addressed to the Agent, and each of the Lenders and dated the Initial Borrowing Date, from (i) Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Credit Parties, which opinion shall cover the matters contained in Exhibit 5.05(A) hereto, (ii) O'Melveny & Myers, counsel to the --------------- Credit Parties, which opinion shall cover the matters contained in Exhibit ------- 5.05(B) hereto and (iii) from such local counsel satisfactory to the Agent as - ------- the Agent may request, which opinions shall cover the perfection of the security interests granted pursuant to the Security Documents and such other matters incident to the transactions contemplated herein as the Agent may reasonably request and shall be in form and substance satisfactory to the Agent. 5.06 Corporate Documents; Proceedings. (a) On the Initial Borrowing -------------------------------- Date, the Agent shall have received from each Credit Party an incumbency certificate, dated the Initial Borrowing Date, signed by the President or any Vice-President of each such Credit Party, and attested to by the Secretary or any Assistant Secretary of such Credit Party, together with copies of the certificate of incorporation, the by-laws, or other organizational documents of each such Credit Party and the resolutions, or such other administrative approval, of each such Credit Party referred to in such certificate, certified by the Secretary or any Assistant Secretary of such Credit Party, and all of the foregoing shall be satisfactory to the Agent. (b) On the Initial Borrowing Date, all corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Documents shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and copies of all certificates, documents and papers, including good standing certificates and any other records of corporate proceedings and approvals, if any, which the Agent may have requested in connection therewith, such documents and papers, where appropriate, to be certified by proper corporate or authorities. 5.07 Plans; Existing Indebtedness Agreements; Shareholders' ------------------------------------------------------ Agreements; Management Agreements; Employment Agreements. On or prior to the - -------------------------------------------------------- Initial Borrowing Date, there shall have been delivered to the Agent true and correct copies of: (i) any Plans maintained or contributed to by the Borrower or any of its Subsidiaries, and for each Plan (x) that is a "single-employer plan" (as defined in Section 4001(a)(15) of ERISA) the most recently completed actuarial valuation prepared therefor by such Plan's regular enrolled actuary and the Schedule B, "Actuarial Information" to the Internal Revenue Service Form 5500 (Annual Report) most recently filed with the Internal Revenue Service and (y) that is a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA), each of the documents referred to in clause (x) either in the 29 possession of the Borrower or any of its Subsidiaries, or any ERISA Affiliate or reasonably available thereto from the sponsor or trustees of such Plan; (ii) all agreements evidencing or relating to Existing Indebtedness (the "Existing Indebtedness Agreements"); -------------------------------- (iii) all agreements entered into by the Borrower or any of its Subsidiaries governing the terms and relative rights of its capital stock, and any agreements entered into by members or shareholders relating to any such entity with respect to their capital stock (collectively, the "Shareholders' Agreements"); ------------------------ (iv) any agreement with members of, or with respect to, the management of the Borrower or any of its Subsidiaries (collectively, the "Management ---------- Agreements"); ---------- (v) any material employment agreements entered into by the Borrower or any of its Subsidiaries (collectively, the "Employment Agreements"); --------------------- (vi) all collective bargaining agreements applying or relating to any employee of the Borrower or any of its Subsidiaries (collectively, the "Collective Bargaining Agreements"); and -------------------------------- (vii) all tax sharing, tax allocation and other similar agreements entered into by the Borrower or any Subsidiary of the Company (collectively, the "Tax Sharing Agreements"); ---------------------- all of which Plans, Existing Indebtedness Agreements, Shareholders' Agreements, Management Agreements, Employment Agreements, Collective Bargaining Agreements and Tax Sharing Agreements shall be in form and substance satisfactory to the Agent. 5.08 Adverse Change, etc. From March 31, 1996, nothing shall have -------------------- occurred (and neither the Lenders nor the Agent shall have become aware of any facts or conditions not previously known) which (a) has, or could reasonably be expected to have, a material adverse effect on the rights or remedies of the Lenders or the Agent or on the ability of the Credit Parties to perform their respective obligations, in each case contained in the Documents, or (b) has, or could reasonably be expected to have, a Material Adverse Effect. 5.09 Litigation. On the Initial Borrowing Date, there shall be no ---------- actions, suits or proceedings pending or threatened (a) with respect to this Agreement or any other Document or the transactions contemplated hereby or thereby (including the Recapitalization) or (b) which the Agent or the Required Lenders shall determine could reasonably be expected to (i) have a Material Adverse Effect or (ii) have a material adverse effect on the rights or remedies of the Lenders hereunder or under any other Loan Document or on the ability of any Credit Party to perform its respective obligations to the Lenders hereunder or under any other Loan Document. 30 5.10 Approvals. On the Initial Borrowing Date, all material --------- necessary and third party approvals and/or consents in connection with the transactions contemplated by the Loan Documents and the other Documents and otherwise referred to herein or therein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains or prevents the consummation of such transactions or imposes, in the reasonable judgment of the Required Lenders or the Agent, materially adverse conditions upon the consummation of such transactions. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon the transactions contemplated by the Documents, the making of the Loans or the issuance of Letters of Credit. 5.11 Consummation of the Recapitalization. On or prior to the ------------------------------------ Initial Borrowing Date, there shall have been delivered to the Lenders true and correct copies of the Recapitalization Documents, and all terms of the Purchase Agreement and the other Recapitalization Documents shall be satisfactory in form and substance to the Agent. The Recapitalization Documents shall have been duly executed and delivered by the parties thereto and shall be in full force and effect. Each of the conditions precedent to the obligations of the Borrower and the other parties thereto to consummate the transactions set forth in the Recapitalization Documents shall have been satisfied, or waived, all to the satisfaction of the Agent, and concurrently with the making of the Term Loans on the Initial Borrowing Date the Recapitalization shall have been consummated in accordance with the Recapitalization Documents and all applicable laws, rules and regulations. 5.12 Common Stock and Debt Issuance on or Prior to the Initial --------------------------------------------------------- Borrowing Date. (a) The Borrower shall have received cash proceeds of at least - -------------- $32,500,000 in connection with the sale of Common Stock of the Borrower; (b) The Agent shall have received evidence that existing management of the Borrower shall have rolled over equity of not less than $17,500,000, as set forth on Schedule 5.12(b); (c) The Borrower shall have received not less than $22,500,000 in gross cash proceeds from the issuance of the Subordinated Debt and associated common stock, the terms of which shall provide that (i) amortization shall not commence earlier than 6 months after the Final Maturity Date, and (ii) interest (cash or otherwise) shall not exceed an aggregate rate of 12% per annum (other than as a result of an event of default thereunder); (d) The Borrower shall have (i) issued Seller Notes in an aggregate principal amount not to exceed $5,000,000 and (ii) adopted the Contingent Bonus Plan, each of which shall be in form and substance satisfactory to the Agent. (e) The Agent and the Lenders shall have received true and correct copies of all documents in respect of all of the matters contained in Section 5.12 (a) through (d) and the terms and conditions thereof shall be in form and substance satisfactory to the Agent and the Lenders. 31 5.13 Minimum Availability. On the Initial Borrowing Date, after -------------------- giving effect to the Borrowing of the Term Loans and any Revolving Loans and Letters of Credit, if any, on the Initial Borrowing Date, and after giving effect to the Borrowing Base as in effect on the Initial Borrowing Date, the sum of (i) Borrower's cash on hand (excluding any amounts not then available to the Borrower) plus (ii) Borrower's ability to incur additional Revolving Loans shall be not less than $8,000,000, after the payment of all fees, costs and expenses in connection with the transactions contemplated by this Agreement and the other Documents, and with all trade payables aged in accordance with normal terms. 5.14 Guarantees. On the Initial Borrowing Date, each subsidiary of ---------- the Borrower shall have duly authorized, executed and delivered a Guaranty in the form of Exhibit 5.14 hereto (as amended, restated, supplemented or otherwise ------------ modified from time to time in accordance with the terms hereof and thereof, the "Guarantees"), and the Guarantees shall be in full force and effect. ---------- 5.15 Security Documents. (a) On the Initial Borrowing Date, the ------------------ Borrower and each of its Subsidiaries which own capital stock of another Subsidiary shall have duly authorized, executed and delivered a Pledge Agreement in the form of Exhibit 5.15(A) hereto (as amended, restated, supplemented or --------------- otherwise modified from time to time in accordance with the terms thereof and hereof, the "Pledge Agreement"), and Borrower shall have delivered to the Agent, ---------------- as pledgee thereunder, all of the certificates representing the Pledged Collateral referred to therein, accompanied by undated stock powers executed in blank, and such Pledge Agreement shall be in full force and effect. (b) On the Initial Borrowing Date, the Borrower and each Subsidiary of the Borrower shall have each duly authorized, executed and delivered (A) a Security Agreement and Assignment of Contracts as Collateral Security in the forms of Exhibits 5.15(B)(1) and (2) hereto (as amended, restated, supplemented --------------------------- or otherwise modified from time to time in accordance with the terms thereof and hereof, the "General Security Agreements") and (B) a Trademark, Patent and --------------------------- Copyright Security Agreement in the form of Exhibit 5.15(C) hereto (as amended, --------------- restated, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof, the "Trademark Security Agreement"), covering ---------------------------- all of the Borrower's and each Subsidiary of the Borrower's present and future Security Agreement Collateral, together with: (i) executed copies of Financing Statements (Form UCC-1) in appropriate form for filing under the UCC of each jurisdiction as may be necessary to perfect the security interests purported to be created by such Security Agreement; (ii) copies of searches of financing statements filed under the UCC, lien and judgment searches and title searches, as appropriate, with respect to the Collateral and the Mortgaged Properties which searches are satisfactory to the Agent; (iii) evidence of the completion of all other recordings and filings of, or with respect to, such Security Agreement as may be necessary or, in the opinion of the Agent, 32 desirable to perfect the security interests intended to be created by such Security Agreement; and (iv) evidence that all other actions necessary or, in the opinion of the Agent, desirable to perfect and protect the security interests purported to be created by such Security Agreement have been taken. 5.16 Solvency. On the Initial Borrowing Date, the Borrower shall -------- have delivered, or shall cause to be delivered to the Lenders (a) a certificate in the form of Exhibit 5.16 hereto, addressed to the Agent and each of the ------------ Lenders and dated the Initial Borrowing Date, from the Chief Financial Officer of the Borrower, providing the opinion of the Chief Financial Officer of the Borrower that, after giving effect to the Recapitalization and the incurrence of all financings contemplated herein, each of the Borrower, on a stand-alone basis, and the Borrower and its Subsidiaries taken as a whole, is not insolvent and will not be rendered insolvent by the indebtedness incurred in connection herewith, will not be left with unreasonably small capital with which to engage in its business and will not have incurred debts beyond its ability to pay such debts as they mature and become due, and (b) a solvency opinion satisfactory to the Agent from Houlihan, Lokey, Howard & Zukin, Inc. to the same effect as in clause (a) above. 5.17 Insurance Policies. On the Initial Borrowing Date, the Agent ------------------ shall have received evidence of insurance complying with the requirements of Section 7.03 for the business and properties of the Borrower and its - ------------ Subsidiaries, in form and substance satisfactory to the Agent with respect to all casualty insurance, naming the Agent as an additional insured, loss payee and mortgagee. 5.18 Fees. On the Initial Borrowing Date, the Borrower shall have ---- paid to the Agent and Fleet all Fees and expenses agreed upon by such parties to be paid on or prior to such date. 5.19 Interim EBITDA. The Agent shall have received evidence -------------- reasonably satisfactory to it that the Consolidated EBITDA of Borrower and its Subsidiaries, as adjusted as set forth in the confidential information memorandum dated January, 1997, for the fiscal period ending on or about January 31, 1997, is on track with Borrower's plan, which provides for such adjusted Consolidated EBITDA to be not less than $18,200,000 for the Borrower's fiscal year ending on or about March 31, 1997. 5.20 Consent Letter. On the Initial Borrowing Date, the Agent shall -------------- have received a letter from CT Corporation System indicating its consent to its appointment by each Credit Party as such Credit Party's agent to receive service of process as specified in Section 12.08. ------------- 5.21 Initial Borrowing Base Certificate. On or prior to the Initial ---------------------------------- Borrowing Date, the Agent shall have received a certificate in the form of Exhibit 5.21 hereto (a "Borrowing Base Certificate") executed by the Chief - ------------ -------------------------- Financial Officer of the Borrower setting forth the Borrowing Base, determined as of such date, in such Borrowing Base Certificate. 33 5.22 Projections; Pro Forma Financial Statements. On or prior to the ------------------------------------------- third Business Day prior to the Initial Borrowing Date, the Borrower shall have delivered to each Lender projected financial statements for the Borrower and its Subsidiaries for the period from the Initial Borrowing Date to and including the seventh anniversary of the Initial Borrowing Date (the "Projections"), which ----------- Projections (A) shall reflect the forecasted balance sheet, income and expenses and cash flow, of the Borrower and its Subsidiaries after giving effect to the Recapitalization and the related financing thereof and the other transactions contemplated hereby and thereby, (B) with respect to the initial twelve months only, shall be prepared on a quarterly basis, and (C) shall be satisfactory in form and substance to the Lenders. 5.23 Existing Indebtedness. On the Initial Borrowing Date, neither --------------------- the Borrower nor the Subsidiaries of the Borrower shall have any Indebtedness outstanding except for the Loans, the Subordinated Debt, the Seller Notes and the Existing Indebtedness. On the Initial Borrowing Date, the terms and conditions of the Existing Indebtedness referred to in the immediately preceding sentence shall be on terms and conditions satisfactory to the Agent and the Lenders. 5.24 Repayment and Termination of Prior Indebtedness and Related ----------------------------------------------------------- Liens. The Agent shall have received a pay-off letter from each holder of Prior - ----- Indebtedness identified on Schedule 5.24 hereto, together with duly executed ------------- UCC-3 termination statements, mortgage releases and such other instruments, in form and substance satisfactory to the Agent, as shall be necessary to terminate and satisfy all Liens created pursuant to the Prior Indebtedness and all other Liens except Permitted Liens and Permitted Encumbrances. The Borrower shall have deposited with Bank of New York, as the Trustee under the Borrower's $10,000,000 12 1/2% convertible subordinated debentures due March 15, 2000 and $10,000,000 7 1/4% subordinated debentures due April 15, 2001, an amount sufficient to redeem all such debentures in full with accrued interest, all in form and substance and pursuant to agreements reasonably satisfactory to the Agent. 5.25 Environmental Report. Metcalf & Eddy shall have conducted an -------------------- environmental analysis of the property and business of the Borrower and its Subsidiaries. Such analysis shall be reasonably satisfactory to the Agent and the Lenders. 5.26 Examination. On or prior to the Initial Borrowing Date, the ----------- Agent shall have conducted, at the Borrower's cost and expense, an inspection and audit of the working capital and related books and records of the Borrower. 5.27 Letter of Direction and Flow of Funds. On the Initial Borrowing ------------------------------------- Date, the Borrower shall have delivered to the Agent an executed letter of direction together with a flow of funds detailing all transfers of funds in connection with the Loans made on the Initial Borrowing Date and the consummation of the Recapitalization, all in form and substance satisfactory to the Agent. 5.28 Other Documents. On the Initial Borrowing Date, the Agent shall --------------- have received such other agreements, certificates and documents as the Agent may reasonably request. 34 The acceptance of the benefits of each Credit Event shall constitute a representation and warranty by the Borrower to the Agent and each of the Lenders that all of the applicable conditions specified above exist as of that time. All of the certificates, legal opinions and other documents and papers referred to in this Section 5, unless otherwise specified, shall be delivered to the --------- Agent at its Notice Office for the account of each of the Lenders and except for the Notes, in sufficient counterparts for each of the Lenders and shall be satisfactory in form and substance to the Agent. SECTION 6. Representations, Warranties and Agreements. In order to ------------------------------------------ induce the Lenders to enter into this Agreement and to make the Loans and issue and/or participate in Letters of Credit provided for herein, the Borrower makes the following representations and warranties to, and agreements with, the Lenders, all of which shall survive the execution and delivery of this Agreement and the making of the Loans (with the making of each Credit Event thereafter being deemed to constitute a representation and warranty that the matters specified in this Section 6 are true and correct in all material respects on and --------- as of the date of each such Credit Event unless such representation and warranty expressly indicates that it is being made as of a specific date); 6.01 Corporate Status. Each of the Borrower and its Subsidiaries (i) ---------------- is a duly organized and validly existing corporation in good standing 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) has 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 would have a Material Adverse Effect. 6.02 Corporate Power and Authority. Each Credit Party has the ----------------------------- corporate power and authority to execute, deliver and carry out the terms and provisions of the Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Documents to which it is a party. Each Credit Party has duly executed and delivered each Document to which it is a party and each such Document constitutes the legal, valid and binding obligation of such Person enforceable in accordance with its terms, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting generally the enforcement of creditors' rights and by general principles of equity. 6.03 No Violation. Neither the execution, delivery and performance ------------ by any Credit Party of the Documents to which it is a party nor compliance with the terms and provisions thereof, nor the consummation of the transactions contemplated therein (i) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or (other than pursuant to the Security Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Borrower or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, agreement or other instrument to which the Borrower or any of its Subsidiaries is a party or by which it or any of its 35 property or assets are bound or to which it may be subject or (iii) will violate any provision of the Articles or Certificate of Incorporation or By-Laws of the Borrower or any of its Subsidiaries. 6.04 Litigation. There are no actions, suits or proceedings pending ---------- or, to the knowledge of the Borrower, threatened, with respect to the Borrower or any of its Subsidiaries (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 ability to consummate the Recapitalization. 6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of all ----------------------------------- Term Loans shall be used by the Borrower (i) to finance, in whole, the repayment of the Prior Indebtedness, (ii) to pay fees, costs and expenses in connection with this Agreement, (iii) to fund, in part, the cash payments owing to the holders of the Borrower's common stock as a result of the effectiveness of the Recapitalization in accordance with the terms and conditions of the Recapitalization Documents and (iv) to pay fees, costs and expenses relating to the transactions contemplated by the Documents. (b) The proceeds of all Revolving Loans may be used (i) on the Initial Borrowing Date for the purposes described in Section 6.05(a) (ii) for the --------------- ongoing working capital and general corporate purposes of the Borrower and its Subsidiaries. (c) The proceeds of all Swingline Loans shall be used for the ongoing working capital and general corporate purposes of the Borrower and its Subsidiaries. (d) Letters of Credit shall be used for general corporate purposes and the ordinary course of business needs of the Borrower and its Subsidiaries. (e) Neither the making of any Loan hereunder, nor the use of the proceeds thereof, will violate or be inconsistent with the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System and no part of the proceeds of any Loan will be used to purchase or carry any Margin Stock in violation of Regulation U or to extend credit for the purpose of purchasing or carrying any Margin Stock. 6.06 Governmental Approvals. Except for filings and recordings in ---------------------- connection with the Security Documents and those items listed on Schedule 6.06 ------------- hereto, no order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority, or any subdivision thereof, is required to authorize or is required in connection with (i) the execution, delivery and performance of any Document or (ii) the legality, validity, binding effect or enforceability of any such Document. 6.07 Investment Company Act. Neither the Borrower 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, as amended. 36 6.08 Public Utility Holding Company Act. Neither the Borrower nor ---------------------------------- any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. 6.09 True and Complete Disclosure. All factual information (taken as ---------------------------- a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower or any of its Subsidiaries in writing to the Agent or any Lender (including, without limitation, all information contained in the Documents) for purposes of or in connection with this Agreement or the other Loan Documents or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of any such Person in writing to the 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 (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. The projections and pro forma financial information contained in such materials are based on good - --- ----- faith estimates and assumptions believed by such Persons to be reasonable at the time made, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There is no fact known to the Borrower which would have a Material Adverse Effect, which has not been disclosed herein or in any Schedule hereto. 6.10 Financial Condition; Financial Statements. (a) On and as of ----------------------------------------- the Initial Borrowing Date, on a pro forma basis after giving effect to the --- ----- Recapitalization and all Indebtedness incurred, and to be incurred, and Liens created, and to be created, by each Credit Party in connection therewith, (i) the sum of the assets, at a fair valuation, of the Borrower and its Subsidiaries taken as a whole will exceed its debts, (ii) the Borrower and its Subsidiaries taken as a whole has not incurred, and does not intend to incur, and does not believe that they will incur, debts beyond their ability to pay such debts as such debts mature and (iii) the Borrower and its Subsidiaries taken as a whole will not have unreasonably small capital with which to conduct its business. For purposes of this Section 6.10, "debt" means any liability on a claim, and ------------ "claim" means (A) 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 (B) 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. (b) (i) The consolidated balance sheet of the Borrower at March 31, 1996 and the related consolidated statements of operations and cash flows of the Borrower for the fiscal year ended as of said dates, have been examined by Coopers & Lybrand, independent certified public accountants, who delivered an unqualified opinion in respect therewith, and (ii) the projected pro forma --- ----- consolidated balance sheet of the Borrower as of January 31, 1997, copies of which have heretofore been furnished to each Lender, present fairly the financial position of such entities at the dates of said statements and the results for the period covered thereby (or, in the case of the pro --- 37 forma balance sheet, presents a good faith estimate of the consolidated pro - ----- --- forma financial condition of the Borrower (after giving effect to the - ----- Recapitalization and the related financing thereof) at the date thereat) in accordance with GAAP, except to the extent provided in the notes to said financial statements. All such financial statements have been prepared in accordance with generally accepted accounting principles and practices consistently applied except to the extent provided in the notes to said financial statements. Except for the incurrence of indebtedness to finance the Recapitalization and the other transactions contemplated by the Documents, nothing has occurred since March 31, 1996 that has had or could reasonably be expected to have a Material Adverse Effect. (c) Except as reflected in the financial statements and the notes thereto described in Section 6.10(b), there were, as of the Initial Borrowing --------------- Date, no liabilities or obligations with respect to the Borrower or any of its Subsidiaries of a nature (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in aggregate, would be material to the Borrower and its Subsidiaries taken as a whole, except as incurred in the ordinary course of business consistent with past practices subsequent to March 31, 1996. 6.11 Security Interests. On and after the Initial Borrowing Date, ------------------ each of the Security Documents creates, as security for the Obligations purported to be secured thereby, a valid and enforceable perfected security interest in and Lien on all of the Collateral subject thereto, superior to and prior to the rights of all third Persons and subject to no other Liens (except (i) that the Security Agreement Collateral may be subject to the security interests evidenced by Permitted Liens relating thereto and (ii) the Mortgaged Properties may be subject to Permitted Encumbrances and Permitted Liens relating thereto), in favor of the Agent for the benefit of the Lenders. No filings or recordings are required in order to perfect the security interests created under any Security Document except for filings or recordings required in connection with any such Security Document (other than the Pledge Agreements) which shall have been made upon or prior to (or are the subject of arrangements, satisfactory to the Agent, for filing and/or recording on or promptly after the date of) the execution and delivery thereof. 6.12 Representations and Warranties in Documents. All ------------------------------------------- representations and warranties of the Borrower and its Subsidiaries, and, to the best of Borrower's knowledge, of all other parties set forth in the Documents were true and correct in all material respects as of the time such representations and warranties were made and shall be true and correct in all material respects as of the Initial Borrowing 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. 6.13 Consummation of Recapitalization. As of the Initial Borrowing -------------------------------- Date, the Recapitalization shall be or, shall have been, consummated substantially simultaneously with the making of the Term Loans and the initial Revolving Loan, in accordance with the terms and conditions of the Documents and all applicable laws. All applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which restrains, prevents, or imposes material adverse 38 conditions upon the consummation of the Recapitalization. As of the Initial Borrowing Date, there does not exist any judgment, order, or injunction prohibiting the consummation of the Recapitalization, or the making of Loans or the performance by any Credit Party of their respective obligations under the Documents. 6.14 Tax Returns and Payments. Each of the Borrower and each of its ------------------------ Subsidiaries has timely filed all federal income tax returns and all other material tax returns, domestic and foreign, required to be filed by it and has paid all material taxes and assessments payable by it which have become due, other than those not yet delinquent and except for those contested in good faith. The Borrower and each of its Subsidiaries have paid, or have provided adequate reserves (in the good faith judgment of the management of the Borrower) for the payment of, all material federal, state and foreign taxes applicable for all prior fiscal years and for the current fiscal year to the date hereof. 6.15 Compliance with ERISA. Except as set forth in Schedule 6.15 --------------------- ------------- hereof, each Plan is in substantial compliance with ERISA and the Code; no Reportable Event has occurred with respect to a Plan; no Plan is insolvent or in reorganization; no Plan has an Unfunded Current Liability; no Plan has an accumulated or waived funding deficiency, has permitted decreases in its funding standard account or has applied for an extension of any amortization period within the meaning of Section 412 of the Code; neither the Borrower, nor any Subsidiary nor any ERISA Affiliate has incurred any material liability to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the Code; no proceedings have been instituted by the PBGC to terminate or appoint a trustee to administer any Plan; no condition exists which presents a material risk to the Borrower or any Subsidiary or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; the aggregate liability of the Borrower 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 ended prior to the date of the most recent Credit Event, would not exceed $250,000; there are no actions, suits or claims pending (other than routine claims for benefits) or, to the knowledge of the Borrower or any Subsidiary, which could reasonably be expected to be asserted against any Plan or the assets of any such Plan; each Plan that is a qualified Plan has received a determination from the Internal Revenue Service that it is qualified within the meaning of Section 401(a) of the Code and nothing has occurred since the date of each such determination that would adversely affect such qualification; no lien imposed under the Code or ERISA on the assets of the Borrower or any Subsidiary or any ERISA Affiliate exists or is likely to arise in connection with any Plan; and the Borrower and its Subsidiaries do not maintain or contribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees (other than as required by Section 601 of ERISA) or any employee pension benefit plan (as defined in Section 3(2) of ERISA), except to the extent that all events described in the preceding clauses of this Section 6.15 and then in existence would not, in the ------------ aggregate, have or be likely to have a Material Adverse Effect. With respect to Plans that are multiemployer plans (within the meaning of Section 4001(a)(3) of ERISA) the representations and warranties in this Section 6.15 are made to the ------------ best knowledge of the Borrower. 39 6.16 Subsidiaries. (a) Schedule 6.16 hereto lists each Subsidiary ------------ ------------- of the Borrower (and the direct and indirect ownership interest of the Borrower therein), in each case existing on the Effective Date. The Borrower will at all times own directly the percentages specified in said Schedule 6.16 of the ------------- outstanding capital stock of all of said entities except to the extent otherwise permitted pursuant to Section 8.02. ------------ (b) There are no restrictions on the Borrower or any of its Subsidiaries which prohibit or otherwise restrict the transfer of cash or other assets from any Subsidiary of the Borrower to the Borrower, other than prohibitions or restrictions existing under or by reason of (i) this Agreement and the other Loan Documents, (ii) applicable law and (iii) customary terms of leases and mortgages with respect to the property covered thereby.. 6.17 Patents, etc. The Borrower and each of its Subsidiaries have ------------- obtained all material patents, trademarks, service marks, trade names, copyrights, licenses and other rights, free from burdensome restrictions, that are necessary for the operation of their businesses taken as a whole as presently conducted and as proposed to be conducted. 6.18 Pollution and Other Regulations. Except as set forth on Schedule ------------------------------- -------- 6.18 or in the Environmental Studies: - ---- (a) each of the Borrower and its Subsidiaries is in compliance with all applicable Environmental Laws governing its business for which failure to comply could reasonably be expected to have a Material Adverse Effect, and neither the Borrower nor any of its Subsidiaries is liable for any material penalties, fines or forfeitures for failure to comply with any of the foregoing in the manner set forth above. All licenses, permits, registrations or approvals required for the business of the Borrower and each of its Subsidiaries, as conducted as of the Initial Borrowing Date, under any Environmental Law have been secured and the Borrower and each of its Subsidiaries is in substantial compliance therewith, except such licenses, permits, registrations or approvals the failure to secure or to comply therewith could not reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries is in any respect in noncompliance with, breach of or default under any applicable writ, order, judgment, injunction, or decree to which the Borrower or such Subsidiary is a party or which would affect the ability of the Borrower or such Subsidiary to operate any real property and no event has occurred and is continuing which, with the passage of time or the giving of notice or both, would constitute noncompliance, breach of or default thereunder, except in each such case, such noncompliance, breaches or defaults as could not reasonably be expected to have a Material Adverse Effect. There are as of the Initial Borrowing Date no Environmental Claims pending or, to the best knowledge of the Borrower, threatened, which (i) question the validity, term or entitlement of the Borrower or any of its Subsidiaries for any permit, license, order or registration required for the operation of any facility which the Borrower or any of its Subsidiaries currently operates and (ii) wherein an unfavorable decision, ruling or finding could reasonably be expected to have a Material Adverse Effect. There are no facts, circumstances, conditions or occurrences on any owned Real Property or, to the knowledge of the Borrower, on any property adjacent to any such owned Real Property that could reasonably be 40 expected (i) to form the basis of an Environmental Claim against the Borrower, any of its Subsidiaries or any Real Property of the Borrower or any of its Subsidiaries, or (ii) to cause such Real Property to be subject to any restrictions on the ownership, occupancy, use or transferability of such Real Property under any Environmental Law, except in each such case, such Environmental Claims or restrictions that could not reasonably be expected to have a Material Adverse Effect, and (b) Hazardous Materials have not, to the knowledge of the Borrower, at any time been (i) generated, used, treated or stored on, or transported to or from, any Real Property of the Borrower or any of its Subsidiaries or (ii) released on any Real Property, in each case where such occurrence or event could reasonably be expected to have a Material Adverse Effect. 6.19 Properties. The Borrower and each of its Subsidiaries have good ---------- and, with respect to Real Properties, marketable title to all properties owned by them, including all property reflected in the consolidated balance sheet of the Borrower and its Subsidiaries as referred to in Section 6.10(b), free and --------------- clear of all Liens, other than as permitted by Section 8.03. Schedule 6.19 ------------ ------------- hereto contains a true and complete list of each Real Property owned or leased by the Borrower or any of its Subsidiaries on the Effective Date and the type of interest therein held by the Borrower or the respective Subsidiary. 6.20 Labor Relations. No Credit Party is engaged in any unfair labor --------------- practice that could reasonably be expected to have a Material Adverse Effect. There is (i) no unfair labor practice complaint pending against any Credit Party or, to the knowledge of the Borrower, threatened against any of them, before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is so pending against any Credit Party or threatened against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against any Credit Party or, to the knowledge of the Borrower, threatened against any Credit Party and (iii) no union representation question existing with respect to the employees of any Credit Party and no union organizing activities are taking place, except with respect to any matter specified in clause (i), (ii) or (iii) above such as could not reasonably be expected to have a Material Adverse Effect. 6.21 Existing Indebtedness. Schedule 6.21 hereto sets forth a true --------------------- ------------- and complete list of all Indebtedness of the Borrower and each of its Subsidiaries as of the Initial Borrowing Date and which is to remain outstanding after giving effect to the Recapitalization (excluding the Loans and the Letters of Credit and the Subordinated Debt and Seller Notes, the "Existing -------- Indebtedness"), in each case showing the aggregate principal amount thereof and the name of the respective borrower (or issuer) and any other entity which directly or indirectly guaranteed such debt. 6.22 Capitalization. On the Initial Borrowing Date, the authorized -------------- capital stock of each Credit Party and the number of shares of capital stock issued and outstanding as of the Initial Borrowing Date of each Credit Party are set forth on Schedule 6.22 hereto. All such outstanding shares have been duly ------------- and validly issued, are fully paid and non-assessable and have been issued free of preemptive rights. Except as set forth on Schedule 6.22, no Credit Party has ------------- outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance 41 (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock, or any stock appreciation or similar rights. 6.23 Compliance with Statutes, etc. Each of the Borrower and its ----------------------------- Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls and labor laws), except such noncompliance as could not reasonably be expected to have a Material Adverse Effect. 6.24 Inventory and Accounts. ---------------------- (a) Except as specifically disclosed on Schedule 6.24 hereto or as ------------- otherwise disclosed to and acknowledged by the Agent in writing, with respect to all Eligible Inventory: (i) such Inventory is located on the premises listed on the schedules attached to the Security Agreements or is Inventory in transit for sale in the ordinary course of business; (ii) no such Inventory is subject to any Lien or security interest whatsoever, except for the Liens and security interests of the Agent and those Liens and security interests permitted by Section 8.03; and ------------ (iii) except as specified in the Security Agreements or otherwise permitted by this Agreement, no such Inventory is on consignment or is now stored or shall at any time hereafter be stored with a bailee, warehouseman, or similar party. (b) With respect to all Eligible Accounts: (i) no transaction giving rise to such an Account violated or will violate any applicable federal, state or local law, rules or ordinances, the violation of which could reasonably be expected to have a Material Adverse Effect; (ii) except where required by statute, none of such Accounts is subject to terms prohibiting assignment or requires notice of or consent to such assignment; (iii) the Borrower or a Subsidiary is the lawful owner of such Accounts, free and clear of all Liens, except those in favor of the Agent and except those permitted by Section 8.03; and ------------ (iv) each of such Accounts represents a fully completed bona fide transaction which requires no further act on the Borrower's or any Subsidiary's part to make such Accounts payable by the Account Debtors, and such Accounts are not subject to any offsets or counterclaims and do not represent consignment sales, guaranteed sales, sale or return or other similar understandings or an obligation of any Affiliate of Borrower. 42 SECTION 7. Affirmative Covenants. The Borrower covenants and agrees --------------------- that on the Initial Borrowing Date and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Letters of Credit or Notes are outstanding and the Loans and Unpaid Drawings, together with interest, Fees and all other Obligations incurred hereunder, are paid in full: 7.01 Information Covenants. The Borrower will furnish to each --------------------- Lender: (a) Annual Financial Statements. As soon as available, and in any --------------------------- event within 95 days after the close of each fiscal year of the Borrower, the consolidated and consolidating balance sheet of the Borrower and its Subsidiaries, as at the end of such fiscal year and the related consolidated and consolidating statements of income and retained earnings and of cash flows for such fiscal year, in each case setting forth comparative consolidated figures for the preceding fiscal year, and examined by independent certified public accountants of recognized national standing whose opinion shall not be qualified as to the scope of audit and as to the status of the Borrower or any of its Subsidiaries as a going concern, together with a certificate of such accounting firm stating that in the course of its regular audit of the business of the Borrower, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge of any Default or Event of Default under Section 8.05, 8.10, 8.11, 8.12 or 8.13 which -------------------------------------- has occurred and is continuing or, if in the opinion of such accounting firm such a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof. (b) Quarterly Financial Statements. As soon as available and in any ------------------------------ event within 60 days after the close of each of the first three quarterly accounting periods in each fiscal year, the consolidated balance sheet of the Borrower and its Subsidiaries, as at the end of such quarterly period and the related consolidated statements of income and retained earnings and of cash flows for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and in each case setting forth comparative consolidated figures for the related periods in the prior fiscal year, all of which shall be certified by the chief financial officer or controller of the Borrower, subject to changes resulting from audit and normal year-end audit adjustments. (c) Monthly Reports. As soon as available, and in any event within 30 --------------- days, after the end of each monthly accounting period of each fiscal year (other than the last monthly accounting period in such fiscal year) the consolidated balance sheet of the Borrower and its Subsidiaries, as at the end of such period, and the related consolidated statements of income for such period, all of which shall be certified by the chief financial officer or controller of the Borrower subject to changes resulting from audit and normal year-end audit adjustments. (d) Budget; etc. As soon as available and in any event within 30 days ------------ after the commencement of each fiscal year of the Borrower, a budget of the Borrower and its Subsidiaries in reasonable detail for each of the twelve months of such fiscal year. Together with each delivery of consolidated financial statements pursuant to Section 7.01(c), a comparison of the current year --------------- 43 to date financial results against the budgets required to be submitted pursuant to this clause (d) shall be presented. (e) Compliance Certificate. At the time of the delivery of the ---------------------- financial statements provided for in Sections 7.01(a) and (b), a certificate of ------------------------ the chief financial officer, controller or other Authorized Officer of the Borrower in the form of Exhibit 7.01(e) hereto (each such certificate, a --------------- "Compliance Certificate"). ---------------------- (f) Notice of Default or Litigation. Promptly, and in any event ------------------------------- within three Business Days after the Borrower obtains knowledge thereof, notice of (i) the occurrence of any event which constitutes a Default or Event of Default which notice shall specify the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto and (ii) the commencement of or any significant development in any litigation or governmental proceeding pending against the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. (g) Borrowing Base Certificates. Promptly after determining same, and --------------------------- in any event within fifteen days following the last day of each fiscal month, a Borrowing Base Certificate executed by the chief financial officer or controller of the Borrower setting forth the Borrowing Base determined as of the last day of such month (together with reasonable detail as to the computation thereof); provided, however, that at any time the Total Unutilized Revolving Commitment - -------- ------- minus the Swingline Loans is less than $2,000,000 or the Borrowing Base minus the sum of all Revolving Loans, Swingline Loans and Letter of Credit Outstandings is less than $2,000,000, the Borrower shall deliver a Borrowing Base Certificate as provided above on a weekly basis by the Thursday following each week or on a more frequent basis as required by Agent. (h) Auditors' Reports. Promptly upon receipt thereof, notice of ----------------- receipt by the Borrower of each other final report or "management letter" submitted to the Borrower by its independent accountants in connection with any annual, interim or special audit made by it of the books of the Borrower, a copy of which may thereafter be requested by a Lender pursuant to Section 7.01(j) --------------- hereof . (i) Monthly Reports and Agings. Promptly, and in any event within -------------------------- fifteen days after the end of each fiscal month, a schedule of inventory in the form of Exhibit 7.01(i) hereto (a "Schedule of Inventory") as of the month then --------------- --------------------- ended, a completed aged schedule of Accounts and a trial balance, in form and substance satisfactory to the Agent. (j) Other Information. (i) Promptly upon transmission thereof, copies ----------------- of any filings and registrations with, and reports to, the Securities and Exchange Commission or any successor thereto (the "SEC") by the Borrower or any --- of its Subsidiaries and (ii) with reasonable promptness, such other information or documents (financial or otherwise) as the Agent or any Lender (through the Agent) may reasonably request from time to time. 44 7.02 Books, Records and Inspections. The Borrower will, and will ------------------------------ cause its Subsidiaries to, permit, upon reasonable notice to the chief financial officer, controller or any other Authorized Officer of the Borrower (i) officers and designated representatives of the Agent or the Lenders to visit and inspect any of the properties or assets of the Borrower and any of its Subsidiaries in whomsoever's possession, and to examine the books of account of the Borrower and any of its Subsidiaries and discuss the affairs, finances and accounts of the Borrower and of any of its Subsidiaries with, and be advised as to the same by, its and their officers and independent accountants, all at such reasonable times and intervals and to such reasonable extent as the Agent or the Required Lenders may desire and (ii) not more than two times per year (and in the event the Borrower is required to deliver Borrowing Base certificates pursuant to Section ------- 7.01(g) more frequently than monthly, four times per year and after an Event of - ------- Default as often and at any time the Agent shall request) the Agent, or a third party designated by the Agent, to conduct, at the Borrower's expense, an audit of the accounts receivable and inventories of the Borrower and its Subsidiaries at such times as the Agent shall reasonably require. 7.03 Maintenance of Property; Insurance. The Borrower will, and will ---------------------------------- cause each of its Subsidiaries to, at all times maintain in full force and effect with responsible insurance companies insurance in such amounts, covering such risks and liabilities and with such deductibles or self-insured retentions as are in accordance with normal industry practice and as is customarily maintained by companies in similar businesses. The Borrower will, and will cause each of its Subsidiaries to, furnish on the Initial Borrowing Date and annually thereafter to the Agent a summary of the insurance carried together with certificates of insurance and other evidence of such insurance, if any, naming the Agent as an additional insured, loss payee and mortgagee. 7.04 Payment of Taxes. The Borrower will pay and discharge, and will ---------------- 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 which, if unpaid, might become a Lien or charge upon any properties of the Borrower or any of its Subsidiaries; provided, -------- however, that neither the Borrower nor any Subsidiary shall be required to pay - ------- any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves (in the good faith judgment of the management of the Borrower) with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested tax, assessment, charge, levy or claim and enforcement of a Lien and there is no risk of forfeiture of any property of the Borrower or any of its Subsidiaries. 7.05 Consolidated Corporate Franchises. The Borrower will do, and --------------------------------- will cause each Subsidiary to do, or cause to be done, all things necessary to preserve and keep in full force and effect its existence, material rights and authority; provided, however, that any transaction permitted by Section 8.02 -------- ------- ------------ will not constitute a breach of this Section 7.05. ------------ 7.06 Compliance with Statutes, etc. The Borrower will, and will ------------------------------ cause each Subsidiary to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of 45 its business and the ownership of its property other than those the non- compliance with which could not reasonably be expected to have a Material Adverse Effect. 7.07 ERISA. As soon as possible and, in any event, within 10 days ----- after the Borrower or any of its Subsidiaries knows or has reason to know of the occurrence of any of the following, the Borrower will deliver to each of the Lenders a certificate of the chief financial officer of the Borrower setting forth details as to such occurrence and such action, if any, which the Borrower, 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 the Borrower, the Subsidiary or the ERISA Affiliate or any notices required or proposed to be given by the Borrower, the Subsidiary or the ERISA Affiliate to the PBGC, a Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred; that an accumulated funding deficiency has been incurred or an application is reasonably likely to be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan; that a Plan which has an Unfunded Current Liability has been or may be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability and there is a failure to make a required contribution, which gives rise to a lien under ERISA or the Code; that proceedings are reasonably likely to be or have been instituted by the PBGC to terminate a Plan which has an Unfunded Current Liability; that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the Borrower, any Subsidiary or any ERISA Affiliate will or is expected to incur any material liability (including any 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, 502(l) or 502(l) of ERISA or that the Borrower or any Subsidiary may incur any material liability pursuant to any employee welfare benefit plan (as defined in Section 3(l) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any employee pension benefit plan (as defined in Section 3(2) of ERISA). Upon request of a Lender, the Borrower will deliver to such Lender a complete copy of the annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service. In addition to any certificates or notices delivered to the Lenders pursuant to the first sentence hereof, copies of any annual reports and any other material notices received by the Borrower or any Subsidiary with respect to a Plan shall be delivered to the Lenders no later than 10 days after the later of the date such notice has been filed with the Internal Revenue Service or the PBGC, given to Plan participants (other than notices relating to an individual participant's benefits) or received by the Borrower or such Subsidiary. 7.08 Good Repair. The Borrower will, and will cause each of its ----------- Subsidiaries to, ensure that its properties and equipment used or useful in its business in whomsoever's possession they may be, are kept in good repair, working order and condition, normal wear and tear excepted, and, subject to Section 8.05, that from time to time there are made in such properties and - ------------ equipment all needful and proper repairs, renewals, replacements, extensions, additions, betterments and improvements thereto, to the extent and in the manner useful or customary for companies in similar businesses. 46 7.09 End of Fiscal Years; Fiscal Quarters. The Borrower will, for ------------------------------------ financial reporting purposes, cause each of its, and each of its Subsidiaries' fiscal years and fiscal quarters to end on the dates set forth on Schedule 7.09 ------------- hereto. 7.10 Use of Proceeds. All proceeds of the Loans shall be used as --------------- provided in Section 6.05. ------------ 7.11 Additional Security; Further Assurances. (a) Not later than --------------------------------------- 120 days after the Initial Borrowing Date, the Agent shall have received: (i) fully executed counterparts of deeds of trust, mortgages and similar documents in each case in form and substance satisfactory to the Agent (each as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof, a "Mortgage" -------- and collectively, the "Mortgages") covering the Borrower's owned Real --------- Property located in Rosemead, California, Lakewood, New Jersey, Cincinnati, Ohio and Avon, Massachusetts and arrangements reasonably satisfactory to the Agent shall be in place to provide that counterparts of such Mortgages shall be recorded in all places to the extent necessary or desirable, in the judgment of the Agent, effectively to create a valid and enforceable first priority Lien, subject only to Permitted Encumbrances (other than those Permitted Encumbrances described on Schedule 8.03 hereto), on each ------------- Mortgaged Property in favor of the Agent (or such other trustee as may be required or desired under local law) for the benefit of the Lenders; (ii) mortgagee title insurance policies issued by title insurers reasonably satisfactory to the Agent (the "Mortgage Policies") in amounts ----------------- reasonably satisfactory to the Agent, not to exceed the value of such Real Properties as reasonably determined by the Agent, and assuring the Agent that the Mortgages in respect of the Rosemead, California, Lakewood, New Jersey, Cincinnati, Ohio and Avon, Massachusetts Real Properties are valid and enforceable first priority mortgage Liens on such Real Properties, free and clear of all defects and encumbrances except Permitted Encumbrances. Such Mortgage Policies shall be in form and substance satisfactory to the Agent and shall include an endorsement for future advances under this Agreement, the Notes and the Mortgages, for mechanics liens and for any other matter that the Agent in its discretion may request; (iii) a survey, in form and substance satisfactory to the Agent, to each Mortgaged Property, each certified by a licensed professional surveyor satisfactory to the Agent and revealing no facts which would materially interfere with the use of such properties by the Borrower and its Subsidiaries, or an update of an existing survey provided the title company will delete the exception for existing facts which a current survey would disclose. (b) Not later than 120 days after the Initial Borrowing Date, the Agent shall have received: 47 (i) fully executed counterparts of leasehold deeds of trust, mortgages and similar documents, in each case in form and substance satisfactory to the Agent (each as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof, a "Leasehold Mortgage" and collectively, the "Leasehold Mortgages") covering ------------------- ------------------- the leased Real Property of the Borrower and its Subsidiaries identified on Exhibit 7.11(b) hereto, and arrangements reasonably satisfactory to the --------------- Agent shall be in place to provide that counterparts of such Leasehold Mortgages shall be recorded in all places to the extent necessary or desirable, in the judgment of the Agent effectively to create a valid and enforceable first priority Lien, subject only to Permitted Encumbrances, with respect to such leased Real Property in favor of the Agent (or such other trustee as may be required or desired under local law) for the benefit of the Lenders; and (ii) fully executed counterparts of collateral assignments of leases in form and substance satisfactory to the Agent (each as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof, a "Collateral Assignment of Lease" and ------------------------------ collectively, the "Collateral Assignments of Leases") covering the leased -------------------------------- Real Property of the Borrower as identified in Exhibit 7.11(b) hereto. --------------- (c) The Borrower will, and will cause its Subsidiaries to, at the expense of the Borrower, grant to the Agent security interests and mortgages (each an "Additional Mortgage") in such owned Real Property of the Borrower and ------------------- its Subsidiaries acquired after the Effective Date as may be requested in writing from time to time by the Agent. Such Additional Mortgages shall be granted pursuant to documentation reasonably satisfactory in form and substance to the Agent and shall constitute valid and enforceable Liens superior to and prior to the rights of all third Persons and subject to no other Liens except as are permitted by Section 8.03. The Additional Mortgages or instruments related ------------ thereto shall have been duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Agent required to be granted pursuant to the Additional Mortgages and all taxes, fees and other charges payable in connection therewith shall have been paid in full. (d) If at any time after the date hereof, any Person becomes a Subsidiary of the Borrower, the Borrower will promptly notify the Agent in writing and will, at the expense of the Borrower and at the written request of the Agent, cause (i) such Subsidiary to guaranty the Obligations and grant to the Agent for the benefit of the Lenders a security interest in and lien on the property and assets of such Subsidiary to secure its obligations under such guaranty, and (ii) the capital stock of such Subsidiary to be pledged to the Agent for the benefit of the Lenders. All such security interests, pledges and guaranties shall be granted or made pursuant to documentation reasonably satisfactory in form and substance to the Agent and shall constitute valid and enforceable Liens superior to and prior to the rights of all third Persons and subject to no other Liens except as are permitted by Section 8.03. All ------------ documents or instruments related thereto shall have been duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Agent required to be granted pursuant to this clause (b) and all taxes, fees and other charges payable in connection therewith shall have been paid in full. 48 (e) The Borrower will, and will cause its Subsidiaries to, at the expense of the Borrower, make, execute, endorse, acknowledge, file and/or deliver to the Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfers endorsements, powers of attorney, certificates, real property surveys, reports and other assurances or instruments and take such further steps relating to the collateral covered by any of the Security Documents as the Agent may reasonably require. Furthermore, the Borrower shall cause to be delivered to the Agent such opinions of counsel, title insurance and other related documents as may be requested by the Agent to assure themselves that this Section 7.11 has been ------------ complied with. (f) In the event that the Agent at any time after the date hereof determines in its good faith discretion that real estate appraisals satisfying the requirements set forth in 12 C.F.R., Part 34-Subpart C, or any successor or similar statute, rule, regulation, guideline or order (any such appraisal a "Required Appraisal") are or were required to be obtained, or should be - ------------------- obtained, in connection with any or all of the Mortgaged Properties, then, such Required Appraisal shall be delivered, at the expense of the Borrower, to the Agent, which Required Appraisal, and the respective appraiser, shall be satisfactory to the Agent. (g) The Borrower shall use its best efforts to obtain and deliver to the Agent duly executed landlord consents and waivers with respect to all leased Real Property of the Borrower, in form and substance reasonably satisfactory to the Agent, and shall take all actions to obtain such documents as the Agent may reasonably request. (h) The Borrower agrees that each action required above by this Section 7.11 shall be completed as soon as possible, but in no event later than - ------------ 60 days after such action is requested to be taken by the Agent or the Required Lenders. 7.12 Interest Rate Protection. Not later than 120 days following the ------------------------ Initial Borrowing Date, the Borrower shall have entered into Interest Rate Agreements, on terms and conditions and pursuant to agreements satisfactory to the Agent, for an amount of not less than $20,000,000 for the period ending the second anniversary of the Initial Borrowing Date and for an amount of not less than $15,000,000 for the period commencing the day after the second anniversary of the Initial Borrowing Date and ending on the third anniversary thereof. SECTION 8. Negative Covenants. The Borrower hereby covenants and ------------------ agrees that as of the Initial Borrowing Date and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Letters of Credit or Notes are outstanding and the Loans and Unpaid Drawings, together with interest, Fees and all other Obligations incurred hereunder, are paid in full: 8.01 Changes in Business. The Borrower will not, and will not permit ------------------- any of its Subsidiaries to, materially alter the character of the business of the Borrower and its Subsidiaries from that conducted at the Initial Borrowing Date provided that this Section 8.01 shall not restrict the making of any ------------ investment expressly permitted by Section 8.06. ------------ 49 8.02 Consolidation, Merger, Sale or Purchase of Assets, etc. The ------------------------------------------------------ Borrower will not, and will not permit any Subsidiary to, wind up, liquidate or dissolve its affairs, or enter into any transaction of merger or consolidation, sell or otherwise dispose of all or any part of its property or assets (other than inventory in the ordinary course of business) or purchase, lease or otherwise acquire all or any part of the property or assets of any Person (other than purchases or other acquisitions of inventory, leases, materials and equipment in the ordinary course of business) or agree to do any of the foregoing at any future time, except that the following shall be permitted: (a) any Subsidiary of the Borrower may be merged or consolidated with or into, or be liquidated into, the Borrower or a Subsidiary Guarantor (so long as the Borrower or such Subsidiary Guarantor is the surviving corporation), or all or any part of its business, properties and assets may be conveyed, leased, sold or transferred to the Borrower or any Subsidiary Guarantor; provided, -------- however, that neither the Borrower nor any Subsidiary Guarantor may be a party - ------- to any merger, consolidation or liquidation otherwise permitted by this clause (a) involving a Subsidiary that is not a Wholly-Owned Subsidiary of the Borrower; (b) capital expenditures permitted to be incurred by Section 8.05; ------------ (c) investments and acquisitions of properties permitted pursuant to Section 8.06; - ------------ (d) each of the Borrower and the Subsidiary Guarantors may lease (as lessee) real or personal property in the ordinary course of business (so long as such lease does not create a Capitalized Lease Obligation not otherwise permitted by Section 8.04(c)); --------------- (e) other sales or dispositions of assets constituting (i) obsolete or worn-out equipment, (ii) the Borrower's facility located in Avon, Massachusetts, and (iii) other Asset Sales but not including any Real Property or facility; provided, however, that the aggregate Net Cash Proceeds received from all such - -------- ------- Asset Sales permitted under this clause (e)(iii) shall not exceed $1,000,000 in the aggregate during the term of this Agreement, provided further, however that ---------------- ------- each such sale permitted pursuant to this Section 8.02(e) shall be in an amount --------------- at least equal to the fair market value thereof and for proceeds consisting solely of not less than (A) 80% cash and (B) seller indebtedness evidenced by promissory notes which notes shall be pledged and delivered to the Agent pursuant to a pledge agreement in form and substance satisfactory to the Agent, and the Net Cash Proceeds of any such sale are applied to repay the Loans to the extent required by Section 4.02(A)(c); and, provided further, that the sale or ------------------ -------- ------- disposition of the capital stock of any Subsidiary Guarantor shall be prohibited; (f) other sales or dispositions of assets in each case to the extent the Required Lenders have consented in writing thereto and subject to such conditions as may be set forth in such consent; and (g) any Subsidiary may be liquidated into the Borrower or a Subsidiary Guarantor. 50 8.03 Liens. The Borrower 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 of any kind (real or personal, tangible or intangible) of the Borrower or any such Subsidiary 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 or notes with recourse to the Borrower or any of its Subsidiaries) or assign any right to receive income, or file 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, except: (a) Liens for taxes not yet due or which are being contested in accordance with Section 7.04; (b) Liens in respect of property or assets of the Borrower or any of its Subsidiaries imposed by law which were incurred in the ordinary course of business, such as carriers', warehousemen's and mechanics' Liens, statutory landlord's Liens, and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Borrower or any Subsidiary or (ii) 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 asset subject to such Lien; (c) Liens created by or pursuant to this Agreement or the other Loan Documents; (d) Liens on assets of the Borrower and each Subsidiary existing on the Initial Borrowing Date and listed on Schedule 8.03 hereto, without giving ------------- effect to any subsequent extensions or renewals thereof; (e) leases or subleases granted to others not interfering in any material respect with the business of the Borrower or any of its Subsidiaries; (f) easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (g) Liens arising from UCC financing statements regarding leases permitted by this Agreement; (h) any interest or title of a lessor under any lease permitted by this Agreement; (i) Liens arising pursuant to purchase money Liens relating to, or security interests securing Indebtedness representing the purchase price of, assets acquired by the Borrower or any Subsidiary Guarantor after the Initial Borrowing Date, provided that any such Liens attach only to the assets so acquired; 51 (j) Liens created pursuant to Capital Leases permitted pursuant to Section 8.04(c); - --------------- (k) Liens arising out of judgments or awards in circumstances not constituting an Event of Default under Section 9.09 provided that no cash or ------------ other property is deposited or delivered to secure any respective judgment or award (or any appeal bond in respect thereof, except as permitted by clause (1) below); (l) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money); and (m) a Lien in favor of the Sellers covering the Seller Escrow Amount and any Lien created by the deposit on the Closing Date of monies with The Bank of New York, as trustee, in order to redeem the debentures described in the last sentence of Section 5.24. ------------ 8.04 Indebtedness. The Borrower will not, and will not permit any of ------------ its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement and the other Loan Documents; (b) Indebtedness of the Borrower and any Subsidiary to each other arising out of intercompany loans and advances; (c) Capitalized Lease Obligations of the Borrower and each Subsidiary Guarantor, and Indebtedness incurred pursuant to purchase money Liens permitted by Section 8.03(i), in each case only if, after giving effect to the incurrence --------------- thereof, the limit on Consolidated Capital Expenditures set forth in Section ------- 8.05 would not be breached; - ---- (d) Indebtedness under Interest Rate Agreements to the extent entered into after the Initial Borrowing Date in compliance with Section 7.12 and ------------ Indebtedness under additional interest rate cap agreements purchased by Borrower; (e) the Existing Indebtedness, but not any increase in amount, extension of maturity or refinancing thereof; (f) the Subordinated Debt, the Junior Subordinated Debt, the Seller Notes and the Indebtedness of the Borrower under each of the Purchase Agreement and the Escrow Agreement 52 (as defined in Section 2.7 of the Purchase Agreement) with respect to the Installment Amount (as defined in Section 2.4(f) of the Purchase Agreement); and (g) additional Indebtedness of the Borrower and the Subsidiary Guarantors not to exceed an aggregate outstanding principal amount of $1,000,000 at any time. 8.05 Capital Expenditures. (a) The Borrower will not, and will not -------------------- permit any of its Subsidiaries to, incur Consolidated Capital Expenditures during each fiscal year or other period set forth below (taken as one accounting period, with each such period being adjusted to correspond to the Borrower's actual fiscal year) in an amount in excess of the amount set forth below opposite such period:
Period Amount - ---------------------------------------------------------- ---------- From the Initial Borrowing Date to March 31, 1997 $ 500,000 Fiscal Year ending March 31, 1998 $2,750,000 Fiscal Year ending March 31, 1999 $3,250,000 Fiscal Year ending March 31, 2000 $3,750,000 Fiscal Year ending March 31, 2001 $4,000,000 Fiscal Year ending March 31, 2002 $4,250,000 Fiscal Year ending March 31, 2003 $4,500,000
(b) In the event that the maximum amount which is permitted to be expended during any fiscal year pursuant to Section 8.05(a) (without giving --------------- effect to this clause (b)) is not fully expended during such fiscal year, the maximum amount which may be expended during the immediately succeeding fiscal year (but not any fiscal year thereafter) pursuant to Section 8.05(a) shall be --------------- increased by such unutilized amount. (c) Commencing with Borrower's fiscal year ending March 31, 2001, the maximum amount which is permitted to be expended during any fiscal year pursuant to Section 8.05(a) shall be increased by an amount equal to 25% of Excess Cash --------------- Flow for the immediately preceding fiscal year. 8.06 Advances, Investments and Loans. The Borrower will not, and will ------------------------------- not permit any of its Subsidiaries to, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to any Person or form or create any Subsidiary on or after the Initial Borrowing Date, except for the following which in each case is pledged to the Agent for the benefit of the Lenders; (a) the Borrower and any Subsidiary may invest in cash and Cash Equivalents; (b) the Borrower and any Subsidiary may acquire and hold receivables owing to them, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; 53 (c) the intercompany Indebtedness described in Section 8.04(b) and --------------- additional Investments in Subsidiary Guarantors shall be permitted; (d) the Borrower and each Subsidiary Guarantor may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (e) the Borrower may own Investments set forth on Schedule 8.06 ------------- hereto; (f) the Borrower may hold the promissory notes acquired in accordance with Section 8.02(e); --------------- (g) advances to employees not to exceed $100,000 individually and $250,000 in the aggregate at any time outstanding; and (h) advances and investments not otherwise permitted hereunder in an amount not to exceed $1,000,000 in the aggregate outstanding at any time during the period from the Initial Borrowing Date through the Final Maturity Date. 8.07 Prepayments of Indebtedness, etc. The Borrower will not, and -------------------------------- will not permit any of its Subsidiaries to, (a) amend, modify, or change in any manner adverse to the interests of the Lenders the Certificate of Incorporation (including, without limitation, by the filing of any certificate of designation) or By-Laws of the Borrower or any Subsidiary, or any agreement entered into by the Borrower or any Subsidiary, with respect to its capital stock, or the Documents, or enter into any new agreement in any manner adverse to the interests of the Lenders with respect to the capital stock of the Borrower or any Subsidiary or (b) prepay any obligations under the Contingent Bonus Plan or any Indebtedness other than the Loans, the Existing Indebtedness or Indebtedness permitted pursuant to Section 8.04(c) or acquire or redeem any Indebtedness or --------------- (c) make any payment under the Seller Notes or the Contingent Bonus Plan unless (i) the Borrower has met the vesting requirements thereof as certified by the Borrower to the Agent, (ii) with respect to the Contingent Bonus Plan only, such payment is made on the last day of a fiscal quarter of the Borrower, (iii) with respect to the Contingent Bonus Plan only, no Default or Event of Default has occurred and is continuing or would result therefrom and (iv) with respect to the Contingent Bonus Plan only, at the time of such payment and after giving effect thereto the remainder of (x) the lesser of the Total Revolving Commitment or the Borrowing Base minus (y) the sum of the Revolving Loans, Swingline Loans and Letter of Credit Outstandings shall be greater than $1,000,000 and the Borrower shall have delivered a certification to the Agent to such effect. 8.08 Capital Stock and Dividends, etc. (a) The Borrower will not, -------------------------------- and will not permit any of its Subsidiaries to, (x) issue any preferred stock or other capital stock (other than Common Stock) or (y) declare or pay any dividends (other than dividends payable solely in common stock of such Person) or return any capital to, its stockholders or authorize or make any other 54 distribution, payment or delivery of property or cash to its stockholders as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, for any consideration, any shares of any class of its stock now or hereafter outstanding (or any warrants for or options or stock appreciation rights in respect of any of such shares), or set aside any funds for any of the foregoing purposes, or permit any of its Subsidiaries to purchase or otherwise acquire for consideration any shares of any class of the capital stock of the Borrower or any other Subsidiary, as the case may be, now or hereafter outstanding (or any options or warrants or stock appreciation rights issued by such Person with respect to its capital stock) (all of the foregoing, "Dividends"), except that: --------- (i) any Subsidiary of the Borrower may pay dividends to the Borrower or to a Subsidiary Guarantor; (ii) Borrower may issue the Junior Subordinated Notes; (iii) So long as no Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower may repurchase its stock for cash from directors, officers and employees pursuant to the Stockholders Agreement (as such term is defined in the definition of Change of Control); provided that each repurchase, together with all other repurchases of stock for cash from officers and employees, does not exceed the following amount for the period commencing the Initial Borrowing Date through the Final Maturity Date: $2,500,000 plus the Replenishment Amount and provided further that in the event of a proposed repurchase permitted pursuant to this clause (iii) the amount of which, together with the amount of all previous or concurrent repurchases, shall exceed $500,000 the Borrower shall provide a certification to the Lenders that at the time of such proposed repurchase and after giving effect thereto, the remainder of (x) the lesser of the Total Revolving Commitment or the Borrowing Base minus (y) the sum of Revolving Loans, Swingline Loans and Letter of Credit Outstandings shall be greater than $5,000,000; and (iv) The Borrower shall be permitted to pay or cause to be paid the Seller Escrow Amount to the Sellers. (b) The Borrower will not, and will not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist any encumbrance or restriction which prohibits or otherwise restricts (i) the ability of any Subsidiary to (A) pay dividends or make other distributions or pay any Indebtedness owed to the Borrower or any Subsidiary, (B) make loans or advances to the Borrower or any Subsidiary, (C) transfer any of its properties or assets to the Borrower or any Subsidiary or (ii) the ability of the Borrower or any other Subsidiary of the Borrower to create, incur, assume or suffer to exist any Lien upon its property or assets to secure the Obligations, other than prohibitions or restrictions existing under or by reason of: (i) this Agreement and the other Loan Documents; (ii) applicable law; and 55 (iii) customary terms of leases and mortgages with respect to the property covered thereby. 8.09 Transactions with Affiliates. The Borrower will not, and will ---------------------------- not permit any Subsidiary to, enter into any transaction or series of transactions after the Initial Borrowing Date whether or not in the ordinary course of business, with any Affiliate other than on terms and conditions substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time in a comparable arm's- length transaction with a Person other than an Affiliate; provided, however, -------- ------- that the foregoing restrictions shall not apply to (i) transactions with its Affiliates set forth in Schedule 8.09 hereto, (ii) employment arrangements ------------- entered into the ordinary course of business with officers of the Borrower and its Subsidiaries, (iii) transactions between Subsidiary Guarantors or between the Borrower and any Subsidiary Guarantor and (iv) customary and reasonable fees paid to members of the Board of Directors of the Borrower and of its Subsidiaries. 8.10 Debt Payment Coverage Ratio. The Borrower will not permit the --------------------------- ratio (the "Debt Payment Coverage Ratio") of (a) Consolidated EBITDA minus the --------------------------- sum of Consolidated Capital Expenditures plus Consolidated Cash Taxes to (b) Consolidated Debt Payments for any Test Period ending at the end of any fiscal quarter of the Borrower commencing with Borrower's fiscal quarter ending June 30, 1997 to be less than 1.05 to 1.00. For Borrower's fiscal quarters ending June 30, 1997, September 30, 1997 and December 31, 1997 Consolidated Cash Interest Expense included as part of Consolidated Debt Payments shall be calculated by annualizing Borrower's Consolidated Cash Interest Expense from the Initial Borrowing Date to the end of the relevant fiscal quarter. 8.11 Minimum Consolidated Net Worth. The Borrower will not permit ------------------------------ Consolidated Net Worth at the end of any fiscal quarter of the Borrower to be less than $10,000,000 less than Consolidated Net Worth as of the Initial Borrowing Date plus 75% of positive Consolidated Net Income from the Initial Borrowing Date to any date of determination. 8.12 Leverage Ratio. The Borrower will not permit the Leverage Ratio -------------- as of the end of any fiscal quarter of the Borrower during the periods set forth below (with each such period being adjusted to correspond to the Borrower's actual fiscal year and fiscal quarters) to be more than the ratio set forth opposite such fiscal quarter:
Period During Which Fiscal Quarter Ends Ratio - ------------------------------------------- ------------------ - --------------------------------------------------------------- March 31, 1997 through December 31, 1997 5.25 - --------------------------------------------------------------- March 31, 1998 through December 31, 1998 4.75 - --------------------------------------------------------------- March 31, 1999 through December 31, 1999 3.50 - --------------------------------------------------------------- March 31, 2000 through December 31, 2000 3.00 - --------------------------------------------------------------- March 31, 2001 through December 31, 2001 2.75 - ---------------------------------------------------------------
56 Period During Which Fiscal Quarter Ends Ratio - -------------------------------------------- ------------------ - ---------------------------------------------------------------- March 31, 2002 and each fiscal quarter end thereafter 2.25 - ---------------------------------------------------------------- 8.13 Interest Coverage Ratio. The Borrower will not permit the ----------------------- Interest Coverage Ratio as of the end of any fiscal quarter of the Borrower during the period being adjusted to correspond to the Borrower's actual fiscal year and fiscal quarters) to be less than the ratio set forth opposite such fiscal quarter; provided that for Borrower's fiscal quarters ending June 30, 1997, September 30, 1997 and December 31, 1997 Consolidated Cash Interest Expense shall be calculated by annualizing Borrower's Consolidated Cash Interest Expense from the Initial Borrowing Date to the end of the relevant fiscal quarter: Period During Which Fiscal Quarter Ends Ratio - -------------------------------------------- --------------------- - ------------------------------------------------------------------- June 30, 1997 through December 31, 1998 2.00 - ------------------------------------------------------------------- March 31, 1999 through December 31, 1999 2.50 - ------------------------------------------------------------------- March 31, 2000 through December 31, 2000 2.75 - ------------------------------------------------------------------- March 31, 2001 and each fiscal quarter end thereafter 3.00 - -------------------------------------------------------------------
8.14 Subsidiary Stock. The Borrower will not permit any of its ---------------- Subsidiaries directly or indirectly to issue, sell, assign, pledge or otherwise encumber or dispose of any shares of its capital stock or other securities (or warrants, rights or options to acquire shares or other equity securities) of such Subsidiary, except, to the extent permitted by Section 8.06, to the ------------ Borrower or to qualify directors if required by applicable law. 8.15 ERISA. The Borrower will not, and will not permit any of its ----- Subsidiaries to, (a) engage in any transaction in connection with which the Borrower, any Subsidiary or any ERISA Affiliate could be subject to either a material civil penalty assessed pursuant to the provisions of Section 502 of ERISA or a material tax imposed under the provisions of Section 4975 of the Code; (b) terminate any Plan in a "distress termination" under Section 4041 of ERISA or take any other action which could result in a material liability of the Borrower, any Subsidiary or any ERISA Affiliate to the PBGC; (c) fail to make payment when due of all amounts which, under the provisions of any Plan, the Borrower, any "Subsidiary or any ERISA Affiliate are required to pay as contributions thereto, or, with respect to any Plan, permit to exist any material "accumulated funding deficiency" (within the meaning of Section 301 of ERISA and Section 412 of the Code), whether or not waived, with respect thereto; or (d) adopt an amendment to any Plan requiring the provision of security under Section 307 of ERISA or Section 401(a) of the Code, which, in each of the foregoing clauses (a) through (d), individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. 57 SECTION 9. Events of Default. Upon the occurrence of the following ----------------- specified events (each an "Event of Default"): ---------------- 9.01 Payments. The Borrower shall default in the payment when due of -------- any principal of the Loans or of any Unpaid Drawing, any interest on the Loans or any Fees or any other amounts owing hereunder or under any other Loan Document which, in the case of any payment other than on account of principal of the Loans continues unpaid for two Business Days; or 9.02 Representations, etc. Any representation, warranty or statement -------------------- made by any Credit Party herein or in any other Loan Document or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or 9.03 Covenants. Any Credit Party shall (a) default in the due --------- performance or observance by it of any term, covenant or agreement contained in Section 7.09, 7.10, 7.12 or 8, or (b) default in the due performance or - ----------------------------- observance by it of any term, covenant or agreement (other than those referred in Section 9.01, 9.02 or clause (a) of this Section 9.03) contained in this ------------------ ------------ Agreement or in any other Loan Document and such default shall continue unremedied for a period of at least 15 Business Days after notice to the defaulting party by the Agent or the Required Lenders; or 9.04 Default Under Other Agreements. (a) The Borrower or any of its ------------------------------ Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the Obligations) beyond the period of grace, if any, applicable thereto or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause any such Indebtedness to become due prior to its stated maturity; or (b) any such Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable, or required to be prepaid other than by a regularly scheduled required repayment or prepayment, prior to the stated maturity thereof; provided, however, that it shall not constitute an Event of Default pursuant to - -------- ------- this Section 9.04 unless the aggregate amount of all Indebtedness referred to in ------------ clauses (a) and (b) above exceeds $1,000,000 at any one time; or 9.05 Bankruptcy, etc. The Borrower or any of its Subsidiaries shall ---------------- commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy", as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the --------------- Borrower or any of its Subsidiaries and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of its Subsidiaries; or the Borrower or any of its Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or 58 hereafter in effect relating to the Borrower or any of its Subsidiaries; or there is commenced against the Borrower or any of its Subsidiaries any such proceeding which remains undismissed for a period of 60 days; or the Borrower or any of its Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any of its Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the Borrower or any of its Subsidiaries makes a general assignment for the benefit of creditors; or any corporation action is taken by the Borrower or any of its Subsidiaries for the purpose of effecting any of the foregoing; or 9.06 ERISA. (a) A single-employer plan (as defined in Section 4001 of ----- ERISA) established by the Borrower, any of its Subsidiaries or any ERISA Affiliate shall fail to maintain the minimum funding standard required by Section 412 of the Code for any plan year or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or shall provide security to induce the issuance of such waiver or extension, (b) any Plan is or shall have been or is likely to be terminated or the subject of termination proceedings under ERISA or an event has occurred entitling the PBGC to terminate a Plan under Section 4042(a) of ERISA, (c) any Plan shall have an Unfunded Current Liability or (d) the Borrower or a Subsidiary or any ERISA Affiliate has incurred or is likely to incur a liability to or on account of a termination of or a withdrawal from a Plan under Section 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; and there shall result from any such event or events described in the preceding clauses of this Section 9.06 the ------------ imposition of a Lien upon the assets of the Borrower or any Subsidiary, the granting of a security interest, or a liability or a material risk of incurring a liability to the PBGC or a Plan or a trustee appointed under ERISA or a penalty under Section 4971 of the Code, in each case or in the aggregate would reasonably be expected to have a Material Adverse Effect; or 9.07 Liens. Any of the Liens created and granted to the Agent for the ----- ratable benefit of the Lenders under the Security Documents shall cease to be valid and perfected Liens, subject to no other Liens except as permitted by Section 8.03, except to the extent that the release thereof is expressly - ------------ permitted hereunder or under the Security Documents; or 9.08 Guaranties. Any Guaranty or any provision thereof shall cease to ---------- be in full force or effect (other than as a result of a merger of a Subsidiary Guarantor permitted pursuant to Section 8.02), or any such Guarantor or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under such Guaranty or any Guarantor shall default in the due performance or observance of any material term, covenant or agreement on its part to be performed or observed pursuant to its Guaranty; or 9.09 Judgments. One or more judgments or decrees shall be entered --------- against the Borrower or any of its Subsidiaries involving a liability in excess of $1,000,000 (not paid or to the extent not covered by insurance) unless such judgment or decree relates to an Environmental Claim, which is indemnified against by the Sellers and as to which there are sufficient amounts in the escrow account provided for under the Recapitalization Documents to pay in full such 59 Environmental Claim, and, in each case, any such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 60 days from the entry thereof; or 9.10 Change of Control. A Change of Control shall occur; ----------------- then and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Agent shall, upon the written request of the Required Lenders, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Agent or any Lender to enforce its claims against the Borrower, except as otherwise specifically provided for in this Agreement (provided that, if an Event of Default specified -------- in Section 9.05 shall occur with respect to the Borrower, the result which would ------------ occur upon the giving of written notice by the Agent as specified in clauses (i) and (ii) below shall occur immediately and automatically without the giving of any such notice): (i) declare the Total Commitment terminated, whereupon the Commitment of each Lender shall forthwith terminate immediately and any Commitment Fee shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans and all Obligations owing hereunder (including Unpaid Drawings) and under any other Loan Document to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; (iii) enforce any or all of the Liens and security interests created pursuant to the Security Documents; (iv) terminate any Letter of Credit which may be terminated in accordance with its terms; and (v) direct the Borrower to pay (and the Borrower hereby agrees upon receipt of such notice, or upon the occurrence of any Event of Default specified in Section 9.05 in respect of the Borrower, it will pay) to the Agent ------------ at the Payment Office such additional amounts of cash, to be held as security for the Borrower's reimbursement obligations in respect of Letters of Credit then outstanding equal to the aggregate Stated Amount of all Letters of Credit then outstanding. SECTION 10. Definitions. As used herein, the following terms ----------- shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular: "A Term Commitment" shall mean, with respect to each Lender, the ----------------- amount, if any, set forth opposite such Lender's name on Schedule 1.01 hereto ------------- directly below the column entitled "A Term Commitment" as the same may be reduced or terminated pursuant to Section 3.03. ------------ "A Term Facility" shall mean the Facility evidenced by the Total A --------------- Term Commitment. "A Term Loan" shall have the meaning provided in Section 1.01(a). ----------- --------------- "A Term Loan Percentage" shall mean, at any time of determination ---------------------- thereof, a fraction (expressed as a percentage) the numerator of which is equal to the Total A Term Commitment at such time (or, if such commitment shall have been terminated, the aggregate principal amount of A Term Loans outstanding at such time) and the denominator of which is equal 60 to the Total Term Commitment at such time (or if such commitment shall have been terminated, the sum of the aggregate principal amount of A Term Loans and B Term Loans, in each case, outstanding at such time). "A Term Note" shall have the meaning provided in Section 1.05(a)(i). ----------- ------------------ "Account" or "account" shall mean any account, as such term is defined ------- ------- in the Uniform Commercial Code - Secured Transactions of New York as it may be amended from time to time. For purposes of this Agreement, the term Account shall also include chattel paper, instruments, notes, notes receivable, rental receivables, conditional sale contracts, acceptances, drafts, documents, and other obligations for the payment of money, books and records, general intangibles, monies, choses in action, credits, claims and demands, credit insurance and guarantees or security for the payment of all of the foregoing, rights of stoppage in transit, reclamation, or replevin with respect to Inventory, returned merchandise, and all products and proceeds (whether cash proceeds or otherwise) of the foregoing, whether now owned, held, or hereafter acquired by the Borrower or any Subsidiary Guarantor. "Account Debtor" shall mean with respect to any Account, the Person or -------------- Persons obligated to make payments with respect to such Account. "Additional Mortgage" shall have the meaning provided in Section 7.11. ------------------- ------------ "Adjusted Cash Flow" for any fiscal year shall mean Consolidated Net ------------------ Income for such fiscal year (after provision for taxes) plus the amount of all net non-cash charges (including, without limitation, depreciation, deferred tax expense, non-cash interest expense, write-downs of inventory and other non-cash charges) that were deducted in arriving at Consolidated Net Income for such fiscal year, minus the amount of all non-cash gains and gains from sales of assets (other than sales of inventory and equipment in the normal course of business) that were added in arriving at Consolidated Net Income for such fiscal year, plus the amount of all non-cash losses and losses from sales of assets (other than sales of inventory and equipment in the normal course of business) that were deducted in arriving at Consolidated Net Income for such fiscal year. "Adjusted Revolving Commitment" for each Non-Defaulting Lender shall ----------------------------- mean at any time the product of such Lender's Adjusted Revolving Commitment Percentage and the Adjusted Total Revolving Commitment. "Adjusted Revolving Commitment Percentage" shall mean (a) at a time ---------------------------------------- when no Lender Default exists, for each Lender such Lender's Revolving Percentage and (b) at a time when a Lender Default exists (i) for each Lender that is a Defaulting Lender, zero and (ii) for each Lender that is a Non- Defaulting Lender, the percentage determined by dividing such Lender's Revolving Commitment at such time by the Adjusted Total Revolving Commitment at such time, it being understood that all references herein to Revolving Commitments and the Adjusted Total Revolving Commitment at a time when the Total Revolving Commitment or Adjusted Total Revolving Commitment, as the case may be, has been terminated shall be references to the Revolving Loan 61 Commitments or Adjusted Total Revolving Commitment, as the case may be, in effect immediately prior to such termination; provided, however, that (A) no -------- ------- Lender's Adjusted Revolving Commitment Percentage shall change upon the occurrence of a Lender Default from that in effect immediately prior to such Lender Default if, after giving effect to such Lender Default and any repayment of Revolving Loans and Swingline Loans at such time pursuant to Section ------- 4.02(A)(a) or otherwise, the sum of (1) the aggregate outstanding principal - ---------- amount of Revolving Loans of all Non-Defaulting Lenders plus (2) the aggregate outstanding principal amount of Swingline Loans plus (3) the Letter of Credit Outstandings, exceeds the Adjusted Total Revolving Loan Commitment; (B) the changes to the Adjusted Revolving Commitment Percentage that would have become effective upon the occurrence of a Lender Default but that did not become effective as a result of the preceding clause (A) shall become effective on the first date after the occurrence of the relevant Lender Default on which the sum of (1) the aggregate outstanding principal amount of the Revolving Loans of all Non-Defaulting Lenders plus (2) the aggregate outstanding principal amount of the Swingline Loans plus (3) the Letter of Credit Outstandings is equal to or less than the Adjusted Total Revolving Commitment; and (C) if (1) a Non- Defaulting Lender's Adjusted Revolving Commitment Percentage is changed pursuant to the preceding clause (B) and (2) any repayment of such Lender's Revolving Loans, or of Unpaid Drawings with respect to Letters of Credit or of Swingline Loans, that were made during the period commencing after the date of the relevant Lender Default and ending on the date of such change to its Adjusted Revolving Commitment Percentage must be returned to the Borrower as a preferential or similar payment in any bankruptcy or similar proceeding of the Borrower, then the change to such Non-Defaulting Lender's Adjusted Revolving Commitment Percentage effected pursuant to said clause (B) shall be reduced to that positive change, if any, as would have been made to its Adjusted Revolving Commitment Percentage if (x) such repayments had not been made and (y) the maximum change to its Adjusted Revolving Commitment Percentage would have resulted in the sum of the outstanding principal of Revolving Loans made by such Lender plus such Lender's new Adjusted Revolving Commitment Percentage of the outstanding principal amount of Swingline Loans and of Letter of Credit Outstandings equaling such Lender's Revolving Commitment at such time. "Adjusted Total Revolving Commitment" shall mean at any time the Total ----------------------------------- Revolving Commitment less the aggregate Revolving Commitments of all Defaulting Lenders. "Adjusted Working Capital" at the end of any fiscal year shall mean ------------------------ (i) Consolidated Current Assets minus cash, minus (ii) Consolidated Current Liabilities (other than Obligations) minus Consolidated Indebtedness (other than Obligations) due and payable in less than one year, plus (iii) any increase in the difference between the Borrowing Base and the sum of Revolving Loans, Swingline Loans and Letter of Credit Outstandings from the end of the immediately preceding fiscal year, minus (iv) any decrease in the difference between the Borrowing Base and the sum of Revolving Loans, Swingline Loans and Letter of Credit Outstandings from the end of the immediately preceding fiscal year. "Affiliate" shall mean, with respect to any Person, any other Person --------- directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be 62 deemed to control a corporation if such Person possesses, directly or indirectly, the power (i) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Agent" shall have the meaning provided in the first paragraph of this ----- Agreement and shall include any successor to the Agent appointed pursuant to Section 11.09. - ------------- "Agreement" shall mean this Credit Agreement, as amended, restated, --------- supplemented or otherwise modified from time to time. "Anticipated Reinvestment Amount" shall mean, with respect to any ------------------------------- Reinvestment Election, the amount specified in the Reinvestment Notice delivered by the Borrower in connection therewith as the amount of the Net Cash Proceeds from the related Asset Sale that the Borrower intends to use to purchase, construct or otherwise acquire Reinvestment Assets. "Applicable Base Rate Margin" shall mean (i) in the case of A Term --------------------------- Loans and Revolving Loans, 1.25%, less the Margin Reduction Discount, if any, (ii) in the case of B Term Loans, 1.75% and (iii) in the case of Swingline Loans, 1.25%, less the Margin Reduction Discount, if any. "Applicable Eurodollar Margin" shall mean (i) in the case of A Term ---------------------------- Loans and Revolving Loans, 2.75%, less the Margin Reduction Discount, if any, and (ii) in the case of B Term Loans, 3.25%. "Asset Sale" shall mean the sale, transfer or other disposition by the ---------- Borrower or any Subsidiary to any Person other than the Borrower or any Subsidiary Guarantor of any asset of the Borrower or such Subsidiary (other than sales in the ordinary course of business of inventory). "Assignment Agreement" shall have the meaning provided in Section -------------------- ------- 12.04(b). - -------- "Authorized Officer" shall mean the President, Chief Financial ------------------ Officer, Treasurer or any other senior officer of the Borrower acceptable to the Agent. "B Term Commitment" shall mean, with respect to each Lender, the ----------------- amount, if any, set forth opposite such Lender's name on Schedule 1.01 hereto ------------- directly below the column entitled "B Term Commitment" as the same may be reduced or terminated pursuant to Section 3.03. ------------ "B Term Facility" shall mean the Facility evidenced by the Total B --------------- Term Commitment. "B Term Loan" shall have the meaning provided in Section 1.01(b). ----------- --------------- 63 "B Term Loan Percentage" shall mean, at any time of determination ---------------------- thereof, a percentage equal to 100% minus the A Term Loan Percentage at such time. "B Term Note" shall have the meaning provided in Section 1.05(a). ----------- "Bankruptcy Code" shall have the meaning provided in Section 9.05. --------------- ------------ "Base Rate" at any time shall mean the higher of (i) the rate which is --------- 1/2 of 1% in excess of the Federal Funds Effective Rate and (ii) the Prime Lending Rate. "Base Rate Loan" shall mean each Loan bearing interest at the rates -------------- provided in Section 1.08(a). "Blocked Accounts" shall have the meaning provided in Section 4.05. ---------------- ------------ "Blocked Account Proceeds" shall have the meaning provided in Section ------------------------ ------- 4.01. - ---- "Borrower" shall have the meaning provided in the first paragraph of -------- this Agreement. "Borrowing" shall mean the incurrence of (i) Swingline Loans by the --------- Borrower from Fleet on a given date or (ii) one Type of Loan pursuant to a single Facility by the Borrower from all of the Lenders having Commitments with respect to such Facility on a pro rata basis on a given date (or resulting from --- ---- conversions on a given date), having in the case of Eurodol1ar Loans the same Interest Period; provided, however, that Base Rate Loans incurred pursuant to -------- ------- Section 1.10(b) shall be considered part of any related Borrowing of Eurodollar - --------------- Loans. "Borrowing Base" shall mean, as of any date of determination, the sum -------------- of (i) 85% of the book value of all Eligible Accounts of the Borrower and the Subsidiary Guarantors plus (ii) 25% of the value (determined at the lower of cost (calculated on a first-in, first-out basis) or market) of all Eligible Inventory of the Borrower and the Subsidiary Guarantors. The Borrowing Base shall be determined on a consolidated basis in accordance with GAAP and as set forth in the last Borrowing Base Certificate delivered by the Borrower pursuant to Section 5.21 or 7.01(g), as the case may be, provided that the Borrowing Base ------------ ------- shall be zero at any time when a Default (to the extent arising from a failure to deliver a Borrowing Base Certificate under Section 7.01(g) or the monthly --------------- reports and agings under Section 7.01(i)) has occurred and is continuing for --------------- five days following the date delivery is required under such Sections. "Borrowing Base Certificate" shall have the meaning provided in -------------------------- Section 5.21. - ------------ "Business Day" shall mean (i) for all purposes other than as covered ------------ by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day 64 described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the interbank Eurodollar market. "Buyer" shall have the meaning provided in the preamble to this ----- Agreement. "Buyer Entities" shall have the meaning provided in the preamble to -------------- this Agreement. "Capital Lease" as applied to any Person shall mean any lease of any ------------- property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Capitalized Lease Obligations" shall mean obligations under Capital ----------------------------- Leases of the Borrower or any of its Subsidiaries in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP. "Cash Equivalents" shall mean (i) securities issued or directly and ---------------- fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United --------- States of America is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (ii) Dollar denominated time deposits, certificates of deposit and bankers' acceptances of (A) any Lender, (B) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (C) any bank (or the parent company of such bank) whose short-term commercial paper rating from Standard & Poor's Ratings Service ("S&P") is at least A-1 or the equivalent thereof or from Moody's --- Investors Service, Inc. ("Moody's") is at least P-l or the equivalent thereof ------- (any such bank, an "Approved Bank"), in each case with maturities of not more ------------- than six months from the date of acquisition, (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any Lender or Approved Bank or by the parent company of any Lender or Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-l or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's (any such company, an "Approved Company"), or guaranteed by any ---------------- industrial company with a long term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be, and in each case maturing within six months after the date of acquisition and (v) investments in money market funds substantially all of whose assets are comprised of securities of the type described in clauses (i) through (iv) above. "Cash Proceeds" shall mean, with respect to any Asset Sale, the ------------- aggregate cash payments (including any cash received by way of deferred payment pursuant to a note receivable issued in connection with such Asset Sale, other than the portion of such deferred payment constituting interest, but only as and when so received) received by the Borrower and/or any Subsidiary from such Asset Sale. 65 "CERCLA" shall mean the Comprehensive Environmental Response, ------- Compensation, and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq. -- ---- "Change of Control" shall mean the occurrence of any of the following ----------------- events: (i) prior to the first Public Equity Offering (as defined below) of the Borrower, the Permitted Holders (as defined below) cease to be the Beneficial Owners (as defined below) of a majority in the aggregate of the total voting power of the Voting Stock (as defined below) of the Borrower, whether as a result of an issuance of securities of the Borrower, any merger, consolidation, liquidation or dissolution of the Borrower, any direct or indirect transfer of securities or otherwise; or (ii) prior to the first Public Equity Offering of the Borrower, any "person" or "group" (as such terms are used in Section 13(d) or 14(d) of the Exchange Act as such term is defined below), other than a "person" or "group" consisting of one or more Permitted Holders, is or becomes the Beneficial Owner of Voting Stock which represents a percentage of the total voting power of the Voting Stock of the Borrower which is greater than that percentage of the total voting power of the Voting Stock of the Borrower which the Investor Group (as defined below) in the aggregate Beneficially Owns (as defined below); provided that at such time the Investor Group does -------- not have the right or ability by voting power, contract or otherwise, to elect or designate for election a majority of the Board of Directors (as defined below) of the Borrower; and provided further that the provisions of -------- ------- this clause (ii) shall only constitute a "Change of Control" in the event that those Investor Holders (as defined below) which hold a majority in principal amount of all Subordinated Debt which is held by Investor Holders, deliver notice to the Borrower that they deem a Change of Control to have occurred pursuant to this clause (ii) (for purposes of this definition of "Change of Control", the term "Investor Holders" shall mean those Holders which are members of the Investor Group); or (iii) after the first Public Equity Offering of the Borrower, any "person" or "group" (as defined in clause (ii) above), other than a "person" or "group" consisting of one or more Permitted Holders, is or becomes the Beneficial Owner of Voting Stock which represents a percentage of the total voting power of the Voting Stock of the Borrower which is (A) greater than twenty-five percent (25%) or more of the total voting power of the Voting Stock of the Borrower and (B) greater than that percentage of the total voting power of the Voting Stock of the Borrower which the Permitted Holders in the aggregate Beneficially Own; provided that at such -------- time the Permitted Holders do not have the right or ability by voting power, contract or otherwise, to elect or designate for election a majority of the Board of Directors of the Borrower; or (iv) after the first Public Equity Offering of the Borrower, during any one-year period, individuals who at the beginning of such period constituted the Board of Directors of the Borrower (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Borrower was approved by a 66 vote of a majority of the directors of the Borrower then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrower then in office; provided that no Change of Control shall be deemed to have occurred solely -------- as a result of the Stockholders Agreement. For purposes of this definition of "Change of Control", and the definitions used within this definition (and only for such purposes), the following terms shall have the following meanings: "Affiliate" of any specified Person shall mean (i) any other --------- Person which, directly or indirectly, is in control of, is controlled by or is under common control with such specified Person or (ii) any other Person who is a director or officer (A) of such specified Person, (B) of any Subsidiary of such specified Person or (C) of any Person described in clause (i) above. For purposes of this definition,, control of a Person means the direct or indirect power to direct or cause the direction of the management and policies of such Person whether through the ownership of Voting Stock, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Beneficial Owner", and terms having similar import, shall ---------------- mean any direct or indirect "beneficial owner", as such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act (except that, for purposes of clause (iii) of the definition of "Change of Control", a person shall be deemed to have "Beneficial Ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time). The Permitted Holders shall be deemed to Beneficially Own all the Voting Stock of a corporation held by any other corporation (such other corporation, the "parent corporation") so long as the Permitted Holders Beneficially Own, directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent corporation. "Board of Directors" shall mean, with respect to any Person, ------------------ such Person's Board of Directors or any committee thereof duly authorized to act on behalf of such Board of Directors. "Capital Stock" of any Person shall mean any and all shares, ------------- interests, rights to purchase, warrants, options, contingent share issuances, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into or exchangeable for such equity. 67 "Exchange Act" shall mean the Securities Exchange Act of ------------ 1934, as amended, and the rules and regulations promulgated thereunder. "Holder" shall mean any of Windward, Windward/ Merchant, ------ Windward/Merban, Metlife or such other Persons in whose name Subordinated Debt is registered on the register maintained pursuant to Section 7.2 of the Subordinated Debt Agreement. "Investor Group" shall mean the Windward Entities, Metlife -------------- and each of their Affiliates. "Permitted Holders" shall mean the Investor Group and any ----------------- Permitted Transferees (as defined in the Stockholders Agreement) thereof. "Preferred Stock", as applied to the Capital Stock of any --------------- corporation, shall mean Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Public Equity Offering" shall mean an underwritten primary, ---------------------- or combined primary and secondary, public offering of Capital Stock (other than Redeemable Stock) of the Borrower (or any entity of which the Borrower is a Subsidiary, to the extent the cash proceeds of such offering are contributed to the Borrower or used to acquire Capital Stock (other than Redeemable Stock) of the Borrower) pursuant to an effective registration statement under the Securities Act, and any similar private placement of securities effected substantially concurrently with any such offering. "Redeemable Stock" shall mean any Capital Stock that by its ---------------- terms or otherwise is required to be redeemed on or prior to the first anniversary of the Stated Maturity of the Subordinated Debt or is redeemable at the option of the holder thereof at any time on or prior to the first anniversary of the Stated Maturity of the Subordinated Debt. "Securities Act" shall mean the Securities Act of 1933, as -------------- amended, and the rules and regulations promulgated thereunder. "Stated Maturity" shall mean, with respect to any security, --------------- the date specified in such security as the fixed date on which all of the outstanding principal of such security is due and payable, including pursuant to any mandatory redemption provision. 68 "Stockholders Agreement" shall mean that certain ---------------------- Stockholders Agreement (including the Schedules and Exhibits attached thereto), dated of even date herewith, among the Borrower, Windward, Windward/Park, Windward/Merchant, Windward/Merban and the other stockholders of the Borrower party thereto, as such agreement may be amended, supplemented or otherwise modified from time to time after the date hereof. "Subsidiary" shall mean, with respect to any Person, a ---------- corporation or other entity (including a partnership) of which a majority of the Capital Stock or other voting interests having voting power under ordinary circumstances to elect a majority of the board of directors or otherwise control such Person is owned by (i) such Person, (ii) such Person and one or more of its Subsidiaries or (iii) one or more Subsidiaries of such Person. "Voting Stock" of a corporation shall mean all classes of ------------ Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Code" shall mean the Internal Revenue Code of 1986, as amended from ---- time to time, and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect at the Effective Date and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Collateral" shall mean all of the "Collateral" or "Pledged ---------- Collateral" as defined in each of the Security Documents. "Commitment" shall mean, with respect to each Lender, such Lender's ---------- Term Commitment and Revolving Commitment. "Commitment Fee" shall have the meaning provided in Section 3.01(a). -------------- --------------- "Common Stock" shall mean the common stock of the Borrower. ------------ "Compliance Certificate" shall have the meaning provided in Section ---------------------- ------- 7.01(e). - ------- "Consolidated Capital Expenditures" shall mean, for any period, the --------------------------------- aggregate of all expenditures (whether paid in cash or accrued as liabilities and including in all events all amounts expended or capitalized under Capital Leases but excluding any amount representing capitalized interest) by the Borrower and its Subsidiaries during that period that, in conformity with GAAP, are or are required to be included in the property, plant or equipment reflected in the consolidated balance sheet of the Borrower and its Subsidiaries. 69 "Consolidated Cash Interest Expense" shall mean, for any period, ---------------------------------- Consolidated Interest Expense, but excluding, however, interest expense not payable in cash and amortization of discount and deferred issuance and financing costs. "Consolidated Cash Taxes" shall mean for any period the aggregate ----------------------- amount of taxes paid in cash by the Borrower and its Subsidiaries during such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Current Assets" shall be determined in accordance with --------------------------- GAAP for Borrower and its Subsidiaries on a consolidated basis. "Consolidated Current Liabilities" shall be determined in accordance -------------------------------- with GAAP for Borrower and its Subsidiaries on a consolidated basis. "Consolidated Debt Payments" shall mean for any period the aggregate -------------------------- amount of all payments on account of the principal component of Indebtedness plus Consolidated Cash Interest Expense for such period. "Consolidated EBIT" shall mean, for any period, (a) the sum of the ----------------- amounts for such period of (i) Consolidated Net Income, (ii) provisions for taxes based on income, (iii) Consolidated Interest Expense, (iv) amortization or write-off of deferred financing costs to the extent deducted in determining Consolidated Net Income and (v) losses on sales of assets (excluding sales in the ordinary course of business) and other extraordinary losses less (b) the ---- amount for such period of gains on sales of assets (excluding sales in the ordinary course of business) and other extraordinary gains, all as determined on a consolidated basis in accordance with GAAP. "Consolidated EBITDA" shall mean, for any period, the sum of the ------------------- amounts for such period of (i) Consolidated EBIT, (ii) depreciation expense, (iii) amortization expense and (iv) all non-cash charges that were deducted in arriving at Consolidated Net Income for such period, all as determined on a consolidated basis in accordance with GAAP. "Consolidated Indebtedness" shall mean, as at any date of ------------------------- determination, the aggregate stated balance sheet amount of all Indebtedness of the Borrower and its Subsidiaries on a consolidated basis as determined in accordance with GAAP. "Consolidated Interest Expense" shall mean, for any period, total ----------------------------- interest expense (including that attributable to Capital Leases in accordance with GAAP) of the Borrower and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements. "Consolidated Net Income" shall mean for any period, the net income ----------------------- (or loss) of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting 70 period determined in conformity with GAAP, provided that there shall be excluded -------- (i) the income (or loss) of any Person (other than Subsidiaries of the Borrower) in which any other Person (other than the Borrower or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any of its Subsidiaries by such Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries or that Person's assets are acquired by the Borrower or any of its Subsidiaries, (iii) the income of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) Transaction Expenses and (v) compensation expense resulting from the issuance of capital stock, stock options or stock appreciation rights issued to employees, including officers, of the Borrower or any Subsidiary, or the exercise of such options or rights, in each case to the extent the obligation (if any) associated therewith is not expected to be settled by the payment of cash by the Borrower or any Affiliate of the Borrower and compensation expense resulting from the repurchase of any such capital stock, options and rights. "Consolidated Net Worth" shall mean at any date, with respect to ---------------------- Borrower and its Subsidiaries on a consolidated basis, the sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficit) of Borrower and its Subsidiaries on a consolidated basis calculated in conformity with GAAP. "Contingent Bonus Plan" shall mean the Contingent Bonus Plan adopted --------------------- by the Borrower dated as of February 14, 1997. "Contingent Obligations" shall mean as to any Person any obligation of ---------------------- such Person guaranteeing or intending to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the ------------------- "primary obligor") in any manner, whether directly or indirectly, including, --------------- without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment 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 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 owner of such primary obligation against loss in respect thereof; provided, however, that -------- ------- the Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. 71 "Credit Event" shall mean and include the making of a Loan or the ------------ issuance of a Letter of Credit. "Credit Party" shall mean the Borrower and the Guarantors. ------------ "Default" shall mean any event, act or condition which with notice or ------- lapse of time, or both, would constitute an Event of Default. "Defaulting Lender" shall mean any Lender with respect to which a ----------------- Lender Default is in effect. "Dividends" shall have the meaning provided in Section 8.08. --------- ------------ "Documents" shall mean, collectively, (a) the Loan Documents, (b) the --------- Recapitalization Documents, (c) the Subordinated Debt Documents and (d) the Seller Note Documents. "Dollar" and "$" shall mean lawful currency of the United States of ------ - America. "Effective Date" shall have the meaning provided in Section 12.10. -------------- ------------- "Eligible Accounts" shall mean an Account which is created by the ----------------- Borrower or any Subsidiary Guarantor, is genuine and is in all respects what it purports to be, and: (a) which is payable in Dollars; (b) the Account Debtor on which has provided, as its most recent billing address, an address located in the United States of America; (c) no portion of which that was invoiced shall have remained outstanding for more than ninety (90) days past the original due date or shall have been charged off in whole or in part; (d) the Account Debtor on which shall not have been identified by the Borrower or a Subsidiary in its computer files as of such date as having (i) commenced, or had commenced in respect of such Account Debtor, a case, action or proceeding under any law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking relief with respect to such Account Debtor's debts, or seeking to have such Account Debtor adjudicated bankrupt or insolvent, or to have a receiver, trustee, custodian or other similar official appointed for such Account Debtor or for all or any substantial part of such Account Debtor's assets or (ii) made a general assignment of such Account Debtor's assets for the benefit of such Account Debtor's creditors, which assignment is then in full force and effect: 72 (e) is not evidenced by chattel paper or an instrument of any kind, or if the Account is evidenced by chattel paper or an instrument, the Borrower has delivered and properly endorsed such chattel paper or instrument to the Agent; and (f) as to which the representations and warranties in Section 6.24 are ------------ true and correct; and (g) is otherwise satisfactory to the Agent in its reasonable discretion. "Eligible Inventory" shall mean, as at the date of determination ------------------ thereof, all finished goods, raw materials and work in process Inventory held by the Borrower or any Subsidiary Guarantor for sale in which the Agent has a valid, perfected, first priority security interest, and which (i) are in good and readily saleable condition (subject to completion in the case of work in process and raw materials) in the ordinary course of business and not obsolete or unmerchantable, (ii) conform to all standards imposed by any governmental authority or other regulatory body having jurisdiction over such goods or the sale thereof, (iii) as to which the representations in Section 6.24 are true and ------------ correct and (iv) are otherwise satisfactory to the Agent in its reasonable discretion. In determining eligibility, the Agent may, but need not, rely on reports and schedules furnished by the Borrower, but reliance by the Agent thereon from time to time shall not be deemed to limit the right of the Agent to review eligibility of Inventory at any time as to both present and future Inventory of the Borrower or a Subsidiary Guarantor. The aggregate value of Eligible Inventory may in the Agent's sole reasonable discretion be reduced by appropriate reserves determined by the Agent. "Eligible Transferee" shall mean a commercial bank, finance company, ------------------- insurance company, fund or other financial institution acceptable to the Agent. "Employment Agreements" shall have the meaning provided in Section --------------------- ------- 5.07(v). - ------- "Environmental Claims" means any and all administrative, regulatory or -------------------- judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations (other than internal reports prepared by the Borrower or any of its Subsidiaries solely in the ordinary course of such Person's business and not in response to any third party action or request of any kind) or proceedings relating in any way to any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereafter, "Claims"), including, without limitation, (a) any and all Claims by ------ governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Law" means any applicable Federal, state, foreign or ----------------- local statute, law, rule, regulation, ordinance, code, guide, policy and rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the 73 environment, health, safety or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, as amended, 33 U.S.C. (S) 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. (S) 7401 -- --- et seq.; the Clean Air Act, 42 U.S.C. (S) 7401 et seq.; the Safe Drinking Water - -- --- -- --- Act, 42 U.S.C. (S) 3808 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. (S) -- --- 2701 et seq. and any applicable state and local or foreign counterparts or -- --- equivalents. "Environmental Studies" shall mean the Environmental Assessments of --------------------- HCC Industries Inc. prepared by Metcalf & Eddy, Inc. dated February 3, 1997 and the Environmental Assessment of HCC Industries Inc. prepared by ICF Kaiser Engineers dated November 11, 1996. "ERISA" shall mean the Employee Retirement Income Security Act of ----- 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the Initial Borrowing Date and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" shall mean each person (as defined in Section 3(9) --------------- of ERISA) which together with the Borrower, a Subsidiary or a Credit Party would be deemed to be a "single employer" within the meaning of Sections 414(b), (c), (m) and (o) of the Code. "Eurodollar Loans" shall mean each Loan bearing interest at the rates ---------------- provided in Section 1.08(b). --------------- "Eurodollar Rate" shall mean with respect to each Interest Period for --------------- a Eurodollar Loan, (i) the offered quotation to first-class banks in the interbank Eurodollar market by the Agent or an Affiliate of the Agent for dollar deposits of amounts in same day funds comparable to the outstanding principal amount of the Eurodollar Loan of the Agent for which an interest rate is then being determined with maturities comparable to the Interest Period to be applicable to such Eurodollar Loan, determined as of 10:00 A.M. (New York time) on the date which is two Business Days prior to the commencement of such Interest Period divided (and rounded upward to the next whole multiple of 1/16 of 1%) 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). "Event of Default" shall have the meaning provided in Section 9. ---------------- --------- "Excess Cash Flow" shall mean, for any fiscal year, (i) Adjusted Cash ---------------- Flow for such fiscal year, minus (ii) the sum of (1) the amount of Consolidated Capital Expenditures (except to the extent financed through the incurrence of Indebtedness) made during such fiscal year, (2) any repayments or prepayments of the principal amount of Term Loans made during such fiscal year, except prepayments of the principal amount of Term Loans made pursuant to Section ------- 4.02(A)(c), (d), (e), and/or (f), (3) regular scheduled payments (but not any - -------------------------------- prepayments) of the principal amount of outstanding Indebtedness permitted pursuant to Section 8.04(c), (e) or (g) made during such year, --------------------------- 74 4) without duplication of (3) above, other payments (including prepayments) of the principal amount of outstanding Indebtedness pursuant to Section 8.04(c), ---------------- (e) or (g) during such year; provided that (x) the amount included under this - ---------- clause (4) shall not exceed $1,000,000 for Borrower's fiscal years ending March 1998 and March 1999 and $500,000 for any fiscal year of Borrower ending after March 1999 and (y) if the Borrower or any of its Subsidiaries shall pay or prepay in full the principal amount of outstanding Indebtedness with respect to an item of machinery or equipment which the Borrower or any of its Subsidiaries shall refinance in the same fiscal year as such payment or prepayment, then with respect to such item of machinery or equipment this clause (4) shall only include that portion of the payment or prepayment made in such fiscal year with respect to such item which exceeds the new amount of Indebtedness which is being financed with respect to such item, (5) repurchases of Borrower's stock for cash to the extent permitted pursuant to Section 8.08(a)(iii); provided that such -------------------- amount shall not exceed $500,000 for any fiscal year and shall only be deducted from Adjusted Cash Flow for Borrower's fiscal years ending March 1998 and March 1999, (6) Consolidated Cash Interest Expense for such fiscal year, and (7) for Borrower's fiscal years ending March 1998, March 1999 and March 2000 only, any increase in Adjusted Working Capital at the end of such fiscal year over that at the end of the immediately preceding fiscal year; provided that such amount shall not exceed $1,500,000 for any fiscal year, plus (iii) for Borrower's fiscal years ending March 1998, March 1999 and March 2000 only, any decrease in Adjusted Working Capital at the end of such fiscal year over that at the end of the immediately preceding fiscal year plus (iv) the net cash received by the Borrower in such fiscal year from sales of equity to directors, officers and employees of the Borrower subsequent to the Initial Borrowing Date. For Borrower's fiscal year ending March 1998, no payment on account of the principal amount of Indebtedness secured by Borrower's or its Subsidiaries Real Property, which was outstanding on the Initial Borrowing Date, shall be deducted from Adjusted Cash Flow. "Existing Indebtedness" shall have the meaning provided in Section --------------------- ------- 6.21. - ---- "Existing Indebtedness Agreements" shall have the meaning provided in -------------------------------- Section 5.07(ii). - ---------------- "Expiration Date" shall mean March 1, 1997. --------------- "Expiry Date" shall mean February 14, 2002. ----------- "Facility" shall mean any of the credit facilities established under -------- this Agreement, i.e., the A Term Facility, B Term Facility or the Revolving --- Facility. "Facing Fee" shall have the meaning provided in Section 3.01(c). ---------- --------------- "Federal Funds Effective Rate" shall mean for any period, a ---------------------------- fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day 75 which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by the Agent. "Fee Letters" shall have the meaning provided in Section 3.01(e). ----------- --------------- "Fees" shall mean all amounts payable pursuant to, or referred to in , ---- Section 3.01. - ------------ "Final Maturity Date" shall mean August 14, 2003. ------------------- "Fleet" shall mean Fleet Capital Corporation in its individual ----- capacity. "GAAP" shall mean generally accepted accounting principles in the ---- United States of America as in effect on the date of this Agreement consistently applied; it being understood and agreed that determinations in accordance with GAAP for purposes of Section 8, including defined terms as used therein, are --------- subject (to the extent provided therein) to Section 12.07(a). ---------------- "General Security Agreement" shall have the meaning provided in -------------------------- Section 5.15. - ------------ "Guaranties" shall mean the Subsidiary Guaranties. ---------- "Guarantors" shall mean the Subsidiary Guarantors. ---------- "Hazardous Materials" means (a) any petroleum or petroleum products, ------------------- radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contained, electric fluid containing levels of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous waste," "hazardous materials," "extremely hazardous waste," "restricted hazardous waste," "toxic substances," "toxic pollutants," "contaminants," or "pollutants," or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority. "Indebtedness" of any Person shall mean without duplication (i) all ------------ indebtedness of such Person for borrowed money or evidenced by notes, bonds, debentures or similar instruments, (ii) the deferred purchase price of assets or services which in accordance with GAAP would be shown on the liability side of the balance sheet of such Person, (iii) the face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder, (iv) all Indebtedness of a second Person secured by any Lien on any property owned by such first Person, whether or not such indebtedness has been assumed, (v) all Capitalized Lease Obligations of such Person, (vi) all obligations of such Person to pay a specified purchase price for goods or services whether or not delivered or accepted, i.e., take-or-pay and similar --- obligations, (vii) all net obligations of such Person under Interest Rate Agreements, (viii) all Contingent Obligations of such Person (other than Contingent Obligations arising from the guaranty by such Person of the obligations of the Borrower and/or its Subsidiaries to the extent such guaranteed obligations do not 76 constitute Indebtedness or are otherwise permitted hereunder) and (ix) with respect to the Borrower, the vested obligations owing by the Borrower under the Contingent Bonus Plan, provided that Indebtedness shall not include trade -------- payables and accrued expenses, in each case arising in the ordinary course of business. "Initial Borrowing Date" shall mean the date upon which the initial ---------------------- Borrowing of Loans occurs. "Interest Coverage Ratio" shall mean, at any date of determination, ----------------------- the ratio of (i) Consolidated EBITDA of the Borrower and its Subsidiaries for the Test Period most recently ended (taken as one accounting period) and ending on such date to (ii) Consolidated Cash Interest Expense of the Borrower and its Subsidiaries for the Test Period most recently ended (taken as one accounting period) and ending on such date. "Interest Period" with respect to any Loan shall mean the interest --------------- period applicable thereto, as determined pursuant to Section 1.09. ------------ "Interest Rate Agreement" shall mean any interest rate swap agreement, ----------------------- any interest rate cap agreement, any interest rate collar agreement or other similar agreement or arrangement designed to protect the Borrower or any Subsidiary against fluctuations in interest rates. "Inventory" shall mean inventory, as such term is defined in the --------- Uniform Commercial Code - Secured Transactions of New York, as it may be amended from time to time. "Junior Subordinated Debt" shall mean the Junior Subordinated ------------------------ Promissory Notes issued pursuant to the Stockholders Agreement (as such term is defined in the definition of "Change of Control"). "Leasehold" of any Person means all of the right, title and interest --------- of such Person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures. "Lender" shall have the meaning provided in the first paragraph of ------ this Agreement. "Lender Default" shall mean (i) the refusal (which has not been -------------- retracted) of a Lender to make available its portion of any incurrence of Loans or to fund its portion of any unreimbursed payment under Section 2.05(c) or to --------------- fund the purchase of its portion of the Swingline Loans under Section 1.01(e) or --------------- (ii) a Lender having notified the Agent and/or the Borrower that it does not intend to comply with the obligations under Section 1.01 or under Section ------------ ------- 2.05(c), in the case of either (i) or (ii) as a result of the appointment of a - ------- receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority. "Letter of Credit" shall have the meaning provided in Section 2.01(a). ---------------- --------------- "Letter of Credit Fee" shall have the meaning provided in Section -------------------- ------- 3.01(b). - ------- 77 "Letter of Credit Issuer" shall mean Fleet Bank N.A. or any Lender ----------------------- which at the request of the Borrower and with the consent of the Agent agrees, in such Lender's sole discretion, to become a Letter of Credit Issuer for purposes of issuing Letters of Credit pursuant to Section 2. --------- "Letter of Credit Outstandings" shall mean, at any time, the sum of, ----------------------------- without duplication, (i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings in respect of all Letters of Credit. "Letter of Credit Request" shall have the meaning provided in Section ------------------------ ------- 2.03(a). - ------- "Leverage Ratio" shall mean, at any date of determination, the ratio -------------- of (i) Consolidated Indebtedness of the Borrower and its Subsidiaries on such date to (ii) Consolidated EBITDA of the Borrower and its Subsidiaries for the Test Period most recently ended (taken as one accounting period) and ending on such date; provided that for purposes of calculating the Leverage Ratio, Consolidated Indebtedness shall not include the unvested portion of the Seller Notes and Contingent Bonus Plan. "Lien" shall mean any mortgage, pledge, security interest, ---- encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof). "Loan" shall have the meaning provided in Section 1.01. ---- ------------ "Loan Documents" shall mean this Agreement, the Notes, the Security -------------- Documents and the Guaranties and any documents, instruments and agreements executed and/or delivered in connection herewith or therewith, all as amended, restated, supplemented or otherwise modified from time to time. "Management Agreements" shall have the meaning provided in Section --------------------- ------- 5.07(iv). - -------- "Management Investors" shall mean, collectively, the executive -------------------- officers of the Borrower who, immediately following Recapitalization, own capital stock of the Borrower, and any persons who thereafter become executive officers of the Borrower and acquire capital stock of the Borrower. "Mandatory Borrowing" shall have the meaning provided in Section ------------------- ------- 1.01(e). - ------- "Margin Reduction Discount" shall mean zero, provided that the Margin ------------------------- -------- Reduction Discount shall be increased, as specified in clauses (i) through (v) below, at any time on or after March 31, 1998, when, and for so long as, the Leverage Ratio set forth in such clause has been satisfied as at the end of the then Relevant Test Periods: 78 (i) the Margin Reduction Discount shall be .25 in the event that as of the end of the Relevant Test Period the Leverage Ratio is greater than or equal to 3.5 but less than 4.0; or (ii) the Margin Reduction Discount shall be .50 in the event that as of the end of the Relevant Test Period the Leverage Ratio is greater than or equal to 3.0 but less than 3.5; or (iii) the Margin Reduction Discount shall be .75 in the event that as of the end of the Relevant Test Period the Leverage Ratio is greater than or equal to 2.5 but less than 3.0; or (iv) the Margin Reduction Discount shall be 1.00 in the event that as of the end of the Relevant Test Period the Leverage Ratio is greater than or equal to 2.0 but less than 2.5; or (v) the Margin Reduction Discount shall be 1.25 in the event that as of the Relevant Test Period the Leverage Ratio is less than 2.0. The Leverage Ratio shall be determined for the Relevant Test Period, by delivery of an officer's certificate of the Borrower to the Lenders pursuant to Section ------- 7.01(e), which certificate shall set forth the calculation of the Leverage - ------- Ratio. The Margin Reduction Discount so determined shall apply, except as set forth below, from five Business Days after the date on which such officer's certificate is delivered to the Agent to the earlier of (A) the date on which the next certificate is delivered to the Agent pursuant to Section 7.01(e) and --------------- (B) the 45th day following the end of the fiscal quarter in which such first certificate was delivered to the Agent. Notwithstanding anything to the contrary contained above, the Margin Reduction Discount shall be zero (1) if no officer's certificate has been delivered to the Lenders pursuant to Section ------- 7.01(e) which sets forth the Leverage Ratio for the Relevant Test Period or the - ------- financial statements upon which any such calculations are based have not been delivered, until such a certificate and/or financial statements are delivered and (2) at all times when there shall exist a violation of Section 9.01 or an ------------ Event of Default. It is understood and agreed that the Margin Reduction Discount as provided above shall in no event be cumulative and only the Margin Reduction Discount available pursuant to the applicable clause (i) through (v), if any, contained in this definition shall be applicable. "Margin Stock" shall have the meaning provided in Regulation U. ------------ "Material Adverse Effect" shall mean (a) a material adverse effect on ----------------------- the business, property, assets, liabilities, operations, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole or (b) the impairment of the ability of any Credit Party to perform its obligations under any Loan Document to which it is a party or of the rights of the Agent or any Lender to enforce or collect any of the Obligations, including the obligations of any Credit Party to perform or of the rights of the Agent or any Lender to enforce any Guaranty. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding 79 that such event does not of itself have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events would result in a Material Adverse Effect. "Maximum Swingline Amount" shall mean $2,000,000. ------------------------ "MetLife" shall have the meaning provided in the preamble to this ------- Agreement. "Minimum Borrowing Amount" shall mean (i) for A Term Loans and B Term ------------------------ Loans maintained as Base Rate Loans, $1,000,000, (ii) for Revolving Loans maintained as Base Rate Loans, $250,000 and (iii) for A Term Loans, B Term Loans and Revolving Loans maintained as Eurodollar Loans, $1,000,000 and, in each case, in integral multiples of $100,000 in excess of the minimum amount set forth in clauses (i), (ii) or (iii) as applicable. "Mortgages" shall have the meaning provided in Section 7.11. --------- ------------ "Mortgage Policies" shall have the meaning provided in Section 7.11. ----------------- ------------ "Mortgaged Properties" shall mean, collectively, all of the properties -------------------- of the Borrower and the Subsidiaries of the Borrower defined as "Mortgaged Property" in each of the respective Mortgages and Additional Mortgages. "Net Cash Proceeds" shall mean, with respect to any Asset Sale, the ----------------- Cash Proceeds resulting therefrom net of expenses of sale (including reasonable brokers and attorneys fees and payment of principal, premium and interest of Indebtedness secured by the assets the subject of the Asset Sale and required to be, and which is, repaid under the terms thereof as a result of such Asset Sale), and incremental taxes paid or payable as a result thereof. "Non-Defaulting Lender" shall mean each Lender other than a Defaulting --------------------- Lender. "Note" and "Notes" shall mean and include each A Term Note, each B ---- ----- Term Note, each Revolving Note and the Swingline Note. "Notice of Borrowing" shall have the meaning provided in Section 1.03. ------------------- ------------ "Notice of Conversion" shall have the meaning provided in Section -------------------- ------- 1.06. "Notice Office" shall mean the office of the Agent at Fleet Capital ------------- Corporation, 200 Glastonbury Boulevard, Glastonbury, CT 06033, Attention: Northeast Loan Administrator or such other office as the Agent may designate to the Borrower from time to time. "Obligations" shall mean all amounts, direct or indirect, contingent ----------- or absolute, of every type or description, and at any time existing, owing to the Agent or any Lender pursuant to the terms of this Agreement or any other Loan Document. 80 "Participant" shall have the meaning provided in Section 2.05(a). ----------- --------------- "Payment Office" shall mean the office of the Agent at Fleet Capital -------------- Corporation, 200 Glastonbury Boulevard, Glastonbury, CT 06033, Attention: Northeast Loan Administrator or such other office as the Agent may designate to the Borrower from time to time. "PBGC" shall mean the Pension Benefit Guaranty Corporation established ---- pursuant to Section 4002 of ERISA, or any successor thereto. "Permitted Encumbrances" shall mean, with respect to the Mortgaged ---------------------- Properties, such exceptions to title as are set forth in the title insurance policies or title commitments delivered with respect thereto, all of which exceptions must be reasonably acceptable to the Agent. "Permitted Liens" shall mean Liens described in clauses (a) through --------------- (l) of Section 8.03. ------------ "Person" shall mean any individual, partnership, joint venture, firm, ------ corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" shall mean any multiemployer or single-employer plan as defined ---- in Section 4001 of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower, a Subsidiary or an ERISA Affiliate, and each such plan for the five years following the latest date on which the Borrower, a Subsidiary, or an ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan. "Pledge Agreements" shall mean any pledge agreement executed and ----------------- delivered by the Borrower or any Subsidiary of the Borrower at any time on or after the date hereof pursuant to Section 5.15 or 7.11. ------- ---- ---- "Pledged Securities" shall mean all the Pledged Collateral as defined ------------------ in the relevant Pledge Agreement. "Prime Lending Rate" shall mean the rate which Fleet National Bank ------------------ announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Fleet National Bank and Fleet may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. "Prior Indebtedness" shall mean the Indebtedness of the Borrower and ------------------ its Subsidiaries identified on Schedule 5.24 hereto, which is to be paid in full ------------- on the Initial Borrowing Date. "Projected EBITDA" shall mean, for any period, Consolidated EBITDA for ---------------- such period as set forth on the Projections. 81 "Projections" shall have the meaning provided in Section 5.22. ----------- ------------ "Purchase Agreement" shall have the meaning provided in the preamble ------------------ to this Agreement. "RCRA" shall mean the Resource Conservation and Recovery Act, as ---- amended, 42 U.S.C. (S) 6901 et seq. -- --- "Real Property" of any Person shall mean all of the right, title and ------------- interest of such Person in and to land, improvements and fixtures, including Leaseholds. "Recapitalization" shall mean the transactions contemplated by the ---------------- Purchase Agreement. "Recapitalization Documents" shall mean the Purchase Agreement and all -------------------------- documents, instruments and agreements entered into pursuant thereto or in connection therewith. "Regulation D" shall mean Regulation D of the Board of Governors of ------------ the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Regulation U" shall mean Regulation U of the Board of Governors of ------------ the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. "Reinvestment Assets" shall mean any assets to be employed in the ------------------- business of the Borrower and its Subsidiaries as described in Section 8.01. ------------ "Reinvestment Election" shall have the meaning provided in Section --------------------- ------- 4.02(A)(c). - ---------- "Reinvestment Notice" shall mean a written notice signed by an ------------------- Authorized Officer of the Borrower stating that the Borrower, in good faith, intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale to purchase, construct or otherwise acquire Reinvestment Assets. "Reinvestment Prepayment Amount" shall mean, with respect to any ------------------------------ Reinvestment Election, the amount, if any, on the Reinvestment Prepayment Date relating thereto by which (i) the Anticipated Reinvestment Amount in respect of such Reinvestment Election exceeds (ii) the aggregate amount thereof expended by the Borrower and its Subsidiaries to acquire Reinvestment Assets. "Reinvestment Prepayment Date" shall mean, with respect to any ---------------------------- Reinvestment Election, the earliest of (i) the date, if any, upon which the Agent, on behalf of the Required Lenders, shall have delivered a written termination notice to the Borrower, provided that such notice may only 82 be given while an Event of Default exists, (ii) the date occurring one year after such Reinvestment Election and (iii) the date on which the Borrower shall have determined not to, or shall have otherwise ceased to, proceed with the purchase, construction or other acquisition of Reinvestment Assets with the related Anticipated Reinvestment Amount. "Relevant Test Period" shall mean, at any time, the Test Period ending -------------------- on the last day of the then most recently ended fiscal quarter of the Borrower, commencing with Borrower's fiscal quarter ending March 31, 1998, with respect to which an officer's certificate has been delivered to the Lenders pursuant to Section 7.01(e). - --------------- "Replenishment Amount" shall mean an amount equal to the net cash -------------------- received by the Borrower from issuances of its Common Stock to its officers and employees subsequent to the Initial Borrowing Date. "Reportable Event" shall mean an event described in Section 4043(c) of ---------------- ERISA with respect to a Plan as to which the 30-day notice requirement has not been waived by the PBGC. "Required Lenders" shall mean Non-Defaulting Lenders whose outstanding ---------------- Term Loans (or, if prior to the Initial Borrowing Date, Term Commitments) and Revolving Commitments (or, if after the Total Revolving Commitment has been terminated, outstanding Revolving Loans and Adjusted Revolving Commitment Percentage of outstanding Swingline Loans and Letter of Credit Outstandings) constitute greater than 50% of the sum of (i) the total outstanding Term Loans of Non-Defaulting Lenders (or, if prior to the Initial Borrowing Date, the Total Term Commitment) and (ii) the Adjusted Total Revolving Commitment (or, if after the Total Revolving Commitment has been terminated, the total outstanding Revolving Loans of Non-Defaulting Lenders and the aggregate Adjusted Revolving Commitment Percentages of all Non-Defaulting Lenders of the total outstanding Swingline Loans and Letter of Credit Outstandings at such time). "Revolving Commitment" shall mean, with respect to each Lender, the -------------------- amount set forth opposite such Lender's name on Schedule 1.01 hereto directly ------------- below the column entitled "Revolving Commitment," as the same may be reduced from time to time pursuant to Section 3.02, 3.03 and/or 9 or adjusted from time --------------------------- to time as a result of assignments to or from such Lender pursuant to Section ------- 12.04. - ----- "Revolving Facility" shall mean the Facility evidenced by the Total ------------------ Revolving Commitment. "Revolving Lenders" shall mean each Lender with a Revolving ----------------- Commitment. "Revolving Loan" shall have the meaning provided in Section 1.01(c). -------------- --------------- "Revolving Note" shall have the meaning provided in Section 1.05(a). -------------- --------------- 83 "Revolving Percentage" shall mean at any time for each Lender with a -------------------- Revolving Commitment, the percentage obtained by dividing such Lender's Revolving Commitment by the Total Revolving Commitment; provided, however, that -------- ------- if the Total Revolving Commitment has been terminated, the Revolving Percentage of each Lender shall be determined by dividing such Lender's Revolving Commitment immediately prior to such termination by the Total Revolving Commitment immediately prior to such termination. "Scheduled Repayment" shall have the meaning provided in Section ------------------- ------- 4.02(A)(b). - ---------- "SEC" shall have the meaning provided in Section 7.01(i). --- --------------- "SEC Regulation D" shall mean Regulation D as promulgated under the ---------------- Securities Act of 1933, as amended, as the same may be in effect from time to time. "Security Agreement Collateral" shall mean all "Collateral" as defined ----------------------------- in the relevant Security Agreement. "Security Agreements" shall mean the General Security Agreements, the ------------------- Trademark Security Agreement and any security agreement executed and delivered by any Subsidiary of the Borrower at any time after the date hereof pursuant to Section 7.11. - ------------ "Security Documents" shall mean the Pledge Agreements, the Guaranties, ------------------ the Security Agreements, the Mortgages, the Additional Mortgages, if any and any other security agreements, mortgages, assignments or similar documents purportedly granting a Lien in favor of the Agent on any property of the Borrower or any of its Subsidiaries. "Seller Escrow Amount" means the approximately $70,000,000 cash -------------------- portion of the purchase price payable to Sellers, placed into escrow with U.S. Trust Company of California, N.A. as escrow agent, pursuant to the terms of the Recapitalization Documents. "Seller Notes" shall mean the 12% subordinated notes issued by the ------------ Borrower in an aggregate principal amount not to exceed $5,000,000 delivered pursuant to the Purchase Agreement as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Seller Note Documents" shall mean the Seller Notes and all --------------------- agreements, documents and instruments entered into pursuant thereto or in connection therewith, as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Shareholders' Agreements" shall have the meaning provided in Section ------------------------ ------- 5.07(iii). - --------- "Stated Amount" of each Letter of Credit shall mean the maximum ------------- available to be drawn thereunder (regardless of whether any conditions for drawing could then be met). 84 "Subordinated Debt" shall mean the 12% Subordinated Notes due 2004 of ----------------- the Borrower issued pursuant to the Subordinated Debt Agreement, as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Subordinated Debt Agreement" shall mean the Subordinated Note --------------------------- Agreement, dated as of February 14, 1997, by and among the Borrower, Windward, Windward/Merchant, Windward/Merban and MetLife, as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Subordinated Debt Documents" shall mean the Subordinated Debt and all --------------------------- agreements, documents and instruments entered into pursuant thereto or in connection therewith, as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Subsidiary" of any Person shall mean and include (i) any corporation ---------- more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise expressly provided, all references herein to "Subsidiary" shall mean a Subsidiary of the Borrower. "Subsidiary Guarantors" shall mean any Subsidiary of the Borrower that --------------------- executes and delivers a Subsidiary Guaranty at any time on or after the date hereof. "Subsidiary Guaranty" shall mean any guaranty executed and delivered ------------------- by any Subsidiary of the Borrower on the date hereof pursuant to Section 5.14 or ------------ at any time after the date hereof pursuant to Section 7.11. ------------ "Swingline Expiry Date" shall mean the date which is five Business --------------------- Days prior to the Expiry Date. "Swingline Loan" shall have the meaning provided in Section 1.01(d). -------------- --------------- "Swingline Note" shall have the meaning provided in Section 1.05(a). -------------- --------------- "Syndication Date" shall mean the earlier of (x) the date which is 90 ---------------- days after the Effective Date and (y) the date upon which the Agent determines in its sole discretion (and notifies the Borrower) that the primary syndication (and the resulting addition to institutions as Lenders pursuant to Section ------- 12.04) has been completed. - ------ "Taxes" shall have the meaning provided in Section 4.04(a). ----- --------------- 85 "Term Commitment" shall mean for any Lender the sum of its A Term --------------- Commitment and its B Term Commitment. "Term Loans" shall mean, collectively, the A Term Loans and B Term ---------- Loans. "Test Period" shall mean for any determination the four consecutive ----------- fiscal quarters of the Borrower then last ended (taken as one accounting period). "Total A Term Commitment" shall mean the sum of the A Term Commitments ----------------------- of each of the Lenders. "Total B Term Commitment" shall mean the sum of the B Term Commitments ----------------------- of each of the Lenders. "Total Commitment" shall mean the sum of the Total Term Commitment and ---------------- the Total Revolving Commitment. "Total Revolving Commitment" shall mean the sum of the Revolving -------------------------- Commitments of each of the Lenders. "Total Term Commitment" shall mean the sum of the Total A Term --------------------- Commitment and the Total B Term Commitment. "Total Unutilized Revolving Commitment" shall mean, at any time, (i) ------------------------------------- the Total Revolving Commitment at such time less (ii) the sum of the aggregate principal amount of all Revolving Loans and Swingline Loans at such time plus the Letter of Credit Outstandings at such time. "Trademark Security Agreement" shall have the meaning provided in ---------------------------- Section 5.15(b). - --------------- "Transaction Expenses" shall mean all fees and expenses incurred in -------------------- connection with, and payable prior to or substantially concurrently with the closing of, the Recapitalization and the transactions contemplated in connection with the Documents, and including all fees paid to any of the Lenders and the Agent hereunder, fees paid to the Windward Entities or their Affiliates permitted hereunder; attorney's fees, accountants' fees, placement agents' fees, discounts and commissions and brokerage, and consultant fees. Transaction Expenses shall include the amortization of any such fees and expenses that are capitalized and not classified as an expense on the date incurred. "Type" shall mean any type of Loan determined with respect to the ---- interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar Loan. --- "UCC" shall mean the Uniform Commercial Code. --- 86 "Unfunded Current Liability" of any Plan shall mean the amount, if -------------------------- any, by which the actuarial present value of the projected benefit obligations under the Plan as of the close of its most recent plan year determined in accordance with Statement of Financial Accounting Standards No. 78, exceeds the fair market value of the assets thereof. "Unpaid Drawing" shall have the meaning provided in Section 2.04(a). -------------- --------------- "Unutilized Revolving Commitment" for any Lender with a Revolving ------------------------------- Commitment at any time shall mean the sum of (i) the Revolving Commitment of such Lender minus (ii) the sum of (A) the aggregate outstanding principal amount of Revolving Loans made by such Lender plus (B) an amount equal to such Lender's Revolving Percentage of the Letter of Credit Outstandings at such time. "Utilized Revolving Commitment" for any Lender with a Revolving ----------------------------- Commitment at any time shall mean the sum of (i) the aggregate outstanding principal amount of Revolving Loans made by such Lender plus (ii) an amount equal to such Lender's Revolving Percentage of the Letter of Credit Outstandings at such time. "Voting Stock" shall mean, with respect to any corporation, the ------------ outstanding stock of all classes (or equivalent interests) which ordinarily, in the absence of contingencies, entitles holders thereof to vote for the election of directors (or Persons performing similar functions) of such corporation, even though the right so to vote has been suspended by the happening of such a contingency. "Wholly-Owned Subsidiary" of any Person shall mean any Subsidiary of ----------------------- such Person to the extent all of the capital stock or other ownership interests in such Subsidiary, other than directors' qualifying shares, is owned directly or indirectly by such Person. "Written" or "in writing" shall mean any form of written communication ------- ---------- or a communication by means of telex, facsimile transmission, telegraph or cable. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. The words "herein", "hereof" and words of similar import as used in this Agreement shall refer to this Agreement as a whole and not to any particular provisions in this Agreement. Unless specifically stated to the contrary, all references to "Sections," "subsections," "paragraphs," "Exhibits" and "Schedules" in this Agreement shall refer to Sections, subsections, paragraphs, Exhibits and Schedules of this Agreement unless otherwise expressly provided; references to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. 87 SECTION 11. The Agent. --------- 11.01 Appointment. The Lenders hereby designate Fleet Capital ----------- Corporation as Agent (for purposes of this Section 11, the term "Agent" shall ---------- include Fleet in its capacity as Agent pursuant to the Security Documents) to act as specified herein and in the other Loan Documents. Each Lender hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, the Agent to take such action on its behalf under the provisions of this Agreement, the other Loan Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its respective officers, directors, agents, employees or affiliates. 11.02 Nature of Duties. The Agent shall not have any duties or ---------------- responsibilities except those expressly set forth in this Agreement and the Security Documents. Neither the Agent nor any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Loan Document or in connection herewith or therewith, unless caused by its or their gross negligence or wilful misconduct. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender or the holder of any Note; and nothing in this Agreement or any other Loan Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. 11.03 Lack of Reliance on the Agent. Independently and without ----------------------------- reliance upon the Agent, each Lender and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Borrower and its Subsidiaries and, except as expressly provided in this Agreement, the Agent shall not have any duty, or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Agent shall not be responsible to any Lender or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Loan Document or the financial condition of the Borrower and its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Loan Document, or the financial condition of the Borrower and its Subsidiaries or the existence or possible existence of any Default or Event of Default. 88 11.04 Certain Rights of the Agent. If the Agent shall request --------------------------- instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Loan Document, the Agent shall be entitled to refrain from such act or taking such action unless and until the Agent shall have received instructions from the Required Lenders; and the Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, neither any Lender nor the holder of any Note shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any other Loan Document in accordance with the instructions of the Required Lenders. 11.05 Reliance. The Agent shall be entitled to rely, and shall be -------- fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that the Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Loan Document and its duties hereunder and thereunder, upon advice of counsel selected by the Agent. 11.06 Indemnification. To the extent the Agent is not reimbursed --------------- and indemnified by the Borrower, the Lenders will reimburse and indemnify the Agent, in proportion to their respective "percentages" as used in determining the Required Lenders, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Agent in performing its respective duties hereunder or under any other Loan Document, in any way relating to or arising out of this Agreement or any other Loan Document; provided, however, that no Lender shall be -------- ------- liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or wilful misconduct as finally determined by a court of competent jurisdiction. 11.07 The Agent in Its Individual Capacity. With respect to its ------------------------------------ obligation to make Loans under this Agreement, the Agent shall have the rights and powers specified herein for a "Lender" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Lenders," "Required Lenders," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Credit Party or any Affiliate of any Credit Party as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower or any other Credit Party for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. 11.08 Holders. The Agent may deem and treat the payee of any Note ------- as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, 89 transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 11.09 Resignation by the Agent. (a) The Agent may resign from ------------------------ the performance of all its functions and duties hereunder and/or under the other Loan Documents at any time by giving 15 Business Days' prior written notice to the Borrower and the Lenders. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Lenders shall appoint a successor Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to the Borrower. (c) If a successor Agent shall not have been so appointed within such 15 Business Day period, the Agent, with the consent of the Borrower, shall then appoint a successor Agent who shall serve as Agent hereunder or thereunder until such time, if any, as the Lenders appoint a successor Agent as provided above. (d) If no successor Agent has been appointed pursuant to clause (b) or (c) above by the 20th Business Day after the date such notice of resignation was given by the Agent, the Agent's resignation shall become effective and the Required Lenders shall thereafter perform all the duties of the Agent hereunder and/or under any other Loan Document until such time, if any, as the Lenders appoint a successor Agent as provided above. SECTION 12. Miscellaneous. ------------- 12.01 Payment of Expenses, etc. The Borrower agrees to: (i) ------------------------ whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Agent in connection with the negotiation, preparation, execution and delivery of the Loan Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of Kaye, Scholer, Fierman, Hays & Handler, LLP) and of the Agent and each of the Lenders in connection with the enforcement of the Loan Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and disbursements of counsel for the Agent and for each of the Lenders); (ii) pay and hold each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Lender (including in its capacity as the Agent or a Letter of Credit Issuer), its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not any Lender is a party thereto) related to the entering into and/or performance of any Document or the use of the proceeds of any Loans hereunder or the 90 Recapitalization or the consummation of any transactions contemplated in any Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or wilful misconduct of the Person to be indemnified as finally determined by a court of competent jurisdiction). 12.02 Right of Setoff. In addition to any rights now or hereafter --------------- granted under applicable law, or otherwise, and not by way of limitation of any such rights, if an Event of Default then exists, each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to any Credit Party or to any other Person any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Lender (including without limitation by branches and agencies of such Lender wherever located) to or for the credit or the account of any Credit Party against and on account of the Obligations and liabilities of such Credit Party to such Lender under this Agreement or under any of the other Loan Documents, including, without limitation, all interests in Obligations of such Credit Party purchased by such Lender pursuant to Section ------- 12.06(b), and all other claims of any nature or description arising out of or - -------- connected with this Agreement or any other Loan Document, irrespective of whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 12.03 Notices. Except as otherwise expressly provided herein, all ------- notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered, if to a Credit Party, at the address specified opposite its signature below or in the other relevant Loan Documents, as the case may be; if to any Lender or the Agent, at its address specified opposite its signature below or, at such other address as shall be designated by any party in a written notice to the other parties hereto. All notices and communications given by a telecommunications device shall be capable of creating a written record of confirmation receipt. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier or personal delivery, and shall be effective when received. All notices given pursuant to Section 4 shall be given by telex or --------- telecopier. 12.04 Benefit of Agreement. (a) This Agreement shall be binding -------------------- upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that the Borrower may not assign or -------- transfer any of its rights or obligations hereunder without the prior written consent of the Lenders. Each Lender may at any time grant participations in any of its rights hereunder or under any of the Notes to another financial institution, provided that in the case of any such participation, (i) the -------- participant shall not have any rights under this Agreement or any of the other Loan Documents (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, except that the participant shall be entitled to the benefits of Sections 1.10 and 4.04 of this Agreement to the extent that such Lender - ------------- ---- 91 would be entitled to such benefits if the participation had not been entered into or sold, (ii) the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents, and (iii) such Lender shall be solely responsible for any withholding taxes, and, provided -------- further that no Lender shall transfer, grant or assign any participation under - ------- which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Loan Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan or Note in which such participant is participating (it being understood that any waiver of the application of any prepayment or the method of any application of any prepayment to, the amortization of the Term Loans shall not constitute an extension of the final maturity date), or reduce the rate or extend the time of payment of interest or Fees thereon, or reduce the principal amount thereof, or increase such participant's participating interest in any Commitment over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment, or a mandatory prepayment, shall not constitute a change in the terms of any Commitment), (ii) release any Guarantor from its obligations under its Guaranty except in accordance with the terms thereof, (iii) release all or substantially all of the Collateral or (iv) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under this Agreement or any other Loan Document. (b) Notwithstanding the foregoing, (i) with the consent of the Agent (which consent shall not be unreasonably withheld or delayed) any Lender may assign all or a portion of its outstanding A Term Loans and/or B Term Loans and/or Revolving Commitment (or, if prior to the Initial Borrowing Date, its A Term Commitment and/or B Term Commitment) and its rights and obligations hereunder to another Lender, and (ii) with the consent of the Agent and the Borrower (which consent by the Agent and the Borrower shall not be unreasonably withheld or delayed and which consent by the Borrower shall not be required if there is continuing a Default or Event of Default), any Lender may assign all or a portion of its outstanding A Term Loans and/or B Term Loans and/or Revolving Commitment and its rights and obligations hereunder to one or more commercial banks, finance companies, insurance companies, funds or other financial institutions (including one or more Lenders); provided, that no consent of the -------- Agent or the Borrower shall be required with respect to the assignment by a Lender to one of its Affiliates of all or a portion of such Lender's A Term Loans and/or B Term Loans only. No assignment pursuant to the immediately preceding sentence shall to the extent such assignment represents an assignment to an institution other than one or more Lenders hereunder, be in an aggregate amount less than $5,000,000 unless the entire Commitment of the assigning Lender is so assigned. If any Lender so sells or assigns all or a part of its rights hereunder or under the Notes, any reference in this Agreement or the Notes to such assigning Lender shall thereafter refer to such Lender and to the respective assignee to the extent of their respective interests and the respective assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would if it were such assigning Lender. Each assignment pursuant to this Section 12.04(b) shall ---------------- be effected by the execution and delivery of an assignment agreement substantially in the form of Exhibit 12.04 hereto (an "Assignment Agreement"). -------------------- In the event of any such assignment (A) to a commercial bank, finance company, insurance company, fund or other financial institution not previously a Lender hereunder, either the assigning or the assignee Lender shall pay to the Agent a nonrefundable 92 assignment fee of $3,500 and (B) to a Lender, either the assigning or assignee Lender shall pay to Agent a nonrefundable assignment fee of $1,500, and at the time of any assignment pursuant to this Section 12.04(b), (1) Schedule l.01 ---------------- ------------- shall be deemed to be amended to reflect the Commitment of the respective assignee (which shall result in a direct reduction to the Commitment of the assigning Lender) and of the other Lenders, (2) such assignee shall become a party to this Agreement as a Lender and such assignee shall have, to the extent of such assignment, the rights, benefits and obligations of a Lender hereunder and under the other Loan Documents, and (3) if any such assignment occurs after the Initial Borrowing Date, the Borrower will issue new Notes to the respective assignee and to the assigning Lender in conformity with the requirements of Section 1.05. Each Lender and the Borrower agree to execute such documents - ------------ (including without limitation amendments to this Agreement and the other Loan Documents) as shall be necessary to effect the foregoing. Nothing in this clause (b) shall prevent or prohibit any Lender from pledging its Notes or Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank. (c) Notwithstanding any other provisions of this Section 12.04, no -------------- transfer or assignment of the interests or obligations of any Lender hereunder or any grant of participation therein shall be permitted prior to the Syndication Date. (d) Each Lender initially party to this Agreement hereby represents, and each Person that became a Lender pursuant to an assignment permitted by this Section 12 will, upon its becoming party to this Agreement, represent that it is - ---------- a commercial lender, other financial institution or other "accredited" investor (as defined in SEC Regulation D) which makes loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that subject to the preceding clauses -------- (a) and (b), the disposition of any promissory notes or other evidences of or interests in Indebtedness held by such Lender shall at all times be within its exclusive control. 12.05 No Waiver; Remedies Cumulative. No failure or delay on the ------------------------------ part of the Agent or any Lender in exercising any right, power or privilege hereunder or under any other Loan Document and no course of dealing between any Credit Party and the Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent or the Lenders to any other or further action in any circumstances without notice or demand. 12.06 Payments Pro Rata; Application of Proceeds. (a) The Agent ------------------------------------------ agrees that promptly after its receipt of each payment from or on behalf of any Credit Party in respect of any Obligations of such Credit Party hereunder, it shall distribute such payment to the Lenders (other than any Lender that has expressly waived its right to receive its pro rata share thereof) pro rata --- ---- 93 based upon their respective shares, if any, of the Obligations with respect to which such payment was received. (b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Loan Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loans or Fees, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the respective Credit Party to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount, provided that if all or any -------- portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. (c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 12.06(a) and (b) shall be subject to the ------------------------- express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders. (d) After the occurrence of an Event of Default and acceleration of the Obligations as herein provided, the proceeds of the Collateral and collections from each Guaranty shall be applied by the Agent to payment of the Obligations and the obligations of any Credit Party owing under Interest Rate Agreements required under Section 7.12 (such obligations, together with the ------------ Obligations, collectively, the "Secured Obligations") in the following order, unless a court of competent jurisdiction shall otherwise direct: (i) FIRST, to payment of all costs and expenses of the Agent incurred in connection with the preservation, collection and enforcement of the Obligations or any Guaranties, or of any of the Liens granted to the Agent pursuant to the Security Documents or otherwise, including, without limitation, any amounts advanced by the Agent to protect or preserve the Collateral; (ii) SECOND, to payment of all costs and expenses of the Lenders and the parties to the foregoing Interest Rate Agreements other than any Credit Parties or affiliates thereof (the "Interest Rate Parties") incurred in connection with the preservation, collection and enforcement of the Secured Obligations, the Loan Documents and such Interest Rate Agreements; (iii) THIRD, to payment of that portion of the Obligations constituting accrued and unpaid interest and fees and indemnities payable under the Loan Documents ratably amongst the Agent and the Lenders in accordance with the proportion which the accrued 94 interest and fees and indemnities payable under the Loan Documents constituting the Obligations owing to the Agent and each such Lender at such time bears to the aggregate amount of accrued interest and fees and indemnities payable under the Loan Documents constituting the Obligations owing to the Agent and all of the Lenders at such time until such interest, fees and indemnities shall be paid in full; (iv) FOURTH, to the Agent in an amount equal to the then aggregate contingent Letter of Credit Outstandings (to the extent that such obligations exceed any other cash collateral held by the Agent securing the payment of same) to be held by the Agent for the payment of such Letter of Credit Outstandings when and if due and payable; (v) FIFTH, to payment of the principal of the Obligations (which shall exclude all contingent Letter of Credit Outstandings and include all the other unpaid Letter of Credit Outstandings) and then due and payable obligations under the Interest Rate Agreements, ratably amongst the Lenders and each Interest Rate Party in accordance with the proportion which the principal amount of the Obligations (which shall exclude all contingent Letter of Credit Outstandings and include all the other unpaid Letter of Credit Outstandings) and then due and payable obligations under the Interest Rate Agreements owing to each such Lender and Interest Rate Party bears to the aggregate principal amount of the Obligations as aforesaid owing to all of the Lenders and then due and payable obligations under the Interest Rate Agreements owing to the Interest Rate Parties until such principal of the Obligations and such then due and payable obligations under the Interest Rate Agreements shall be paid in full; (vi) SIXTH, to the payment of all other Secured Obligations, ratably amongst the Lenders and Interest Rate Parties in accordance with the proportion which the amount of such other Secured Obligations owing to each such Lender and Interest Rate Party bears to the aggregate principal amount of such other Secured Obligations owing to all of the Lenders and Interest Rate Parties until such other Secured Obligations shall be paid in full; and (vii) SEVENTH, the balance, if any, after all of the Secured Obligations has been satisfied, shall be paid by the Agent to the Borrower or paid over to such other Person or Persons as may be required by law. In the event that the amount of monies received by the Agent under clause (iv) above with respect to Letters of Credit for which there are contingent Letter of Credit Outstandings at the time of the Agent's receipt of such monies shall, together with any other cash collateral securing such contingent Letter of Credit Outstandings which is not securing other Secured Obligations, exceeds the amount of actual payments the applicable Letter of Credit Issuers shall have made with respect to such Letters of Credit after the Agent's receipt of such monies, which determination shall be made after all such Letters of Credit have been terminated or have expired, then the Agent shall apply such excess monies and cash collateral in accordance with this Section ------- 12.06. - ----- 95 The Borrower acknowledges and agrees that it shall remain liable to the extent of any deficiency between the amount of the proceeds of the Collateral and collections under the Guaranties and the aggregate amount of the sums referred to in the first through sixth clauses above. 12.07 Calculations; Computations. (a) The financial statements -------------------------- to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Lenders); provided, however, that (i) except as otherwise --------- ------- specifically provided herein, all computations determining compliance with Section 8, including definitions used therein, shall utilize accounting - --------- principles and policies in effect at the time of the preparation of, and in conformity with those used to prepare, the March 31, 1996 historical financial statements of the Borrower delivered to the Lenders pursuant to Section 6.10(b), --------------- and (ii) that if at any time the computations determining compliance with Section 8 utilize accounting principles different from those utilized in the - --------- financial statements furnished to the Lenders, such financial statements shall be accompanied by reconciliation work-sheets. To the extent this Agreement provides that the Borrower's fiscal year ends in March or on a specific date in March of any year, then such date shall be adjusted to correspond to the Borrower's actual fiscal year-end for such year. (b) All computations of interest and Fees hereunder shall be made on the actual number of days elapsed over a year of 360 days; provided that interest computed at the Base Rate shall be calculated based on a year of 365 or 366 days as applicable. 12.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of ----------------------------------------------------------- Jury Trial. (a) This Agreement and the other Loan Documents and the rights and - ---------- obligations of the parties hereunder and thereunder shall be construed in accordance with and be governed by the law of the State of New York. Any legal action or proceeding with respect to this Agreement or any other Loan Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each Credit Party hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Credit Party 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 Credit Party located outside New York City and by hand delivery to each Credit Party located within New York City, at its address for notices pursuant to Section 12.03, such service to become effective 30 days ------------- after such mailing. Each Credit Party hereby irrevocably designates, appoints and empowers CT Corporation System as its agent for service of process in respect of any such action or proceeding. Nothing herein shall affect the right of the Agent, any Lender to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any Credit Party in any other jurisdiction. (b) Each Credit Party hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Loan Document brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any 96 such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. 12.09 Counterparts. This Agreement may be executed in any number ------------ of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Agent. 12.10 Effectiveness. This Agreement shall become effective on the ------------- date (the "Effective Date") on which the Borrower and each of the Lenders shall -------------- have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Agent at the Payment Office of the Agent or, in the case of the Lenders, shall have given to the Agent telephonic (confirmed in writing), written telex or facsimile transmission notice (actually received) at such office that the same has been signal and mailed to it. 12.11 Headings Descriptive. The headings of the several sections -------------------- and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 12.12 Amendment or Waiver. Neither this Agreement nor any other ------------------- Loan Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrower and the Required Lenders; provided, however, that no such -------- ------- change, waiver, discharge or termination shall, without the consent of each Lender (other than a Defaulting Lender) affected thereby, (i) extend the Final Maturity Date or Expiry Date, as the case may be, (it being understood that any waiver of the application of any prepayment of or the method of application of any prepayment to the amortization of, the Loans shall not constitute any such extension), or reduce the rate or extend the time of payment of interest or Fees thereon, or reduce the principal amount thereof, or increase the Commitment of any Lender over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment shall not constitute a change in the terms of any Commitment of any Lender), (ii) release or permit the release of all or substantially all of the Collateral or release any Guarantor from its Guaranty (in each case except as expressly provided in the Loan Documents), (iii) amend, modify or waive any provision 97 of this Section, (iv) reduce the percentage specified in, or otherwise modify, the definition of Required Lenders or (v) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement; provided further, that no such change, waiver, discharge or termination shall: - -------- ------- (A) reduce the amount or extend the payment date for the mandatory prepayments (including the Scheduled Repayments) of A Term Loans required under Section 4.02 ------------ or change the allocation or the method of allocation of payments under Section ------- 4.01 or 4.02 without the consent of each Lender (other than a Defaulting Lender) - ---- ---- which has an A Term Loan then outstanding; (B) reduce the amount or extend the payment date for the mandatory prepayments (including the Scheduled Repayments) of B Term Loans required under Section 4.02 or change the allocation or the ------------ method of allocation of payments under Section 4.01 or 4.02 without the consent of each Lender (other than a Defaulting Lender) which has a B Term Loan then outstanding; (C) reduce the amount of, or extend the date for, any mandatory reduction in the Revolving Commitments required under Section 3.03, or reduce ------------- the amount or extend the payment date for the mandatory prepayments of Revolving Loans required under Section 4.02, without the consent of each Lender (other ------------ than a Defaulting Lender) which has a Revolving Commitment at such time (or, if after the Total Revolving Commitment has been terminated, each Lender (other than a Defaulting Lender) which has any Revolving Loans then outstanding); or (D) modify any provision relating to the Swingline Loans, Swingline Facility, Mandatory Borrowing or Swingline Expiry Date, in each case without the consent of Fleet; and provided further, that the Agent and the Borrower may amend this -------- ------- Agreement without the consent of any Lender solely for the purpose of designating any Person that becomes a Lender as a Co-Agent hereunder. No provision of Section 2 or 11 may be amended without the consent of the Letter of --------------- Credit Issuer or the Agent, respectively. 12.13 Survival. All indemnities set forth herein including, -------- without limitation, in Sections 1.10, 1.11, 4.04, 11.06 and 12.01 shall survive ------------------------------------------ the execution and delivery of this Agreement and the making and repayment of the Loans. 98 12.14 Domicile of Loans. Each Lender may transfer and carry its ----------------- Loans at, to or for the account of any branch office, subsidiary or affiliate of such Lender, provided that the Borrower shall not be responsible for costs -------- arising under Section 1. 10 or 4.04 resulting from any such transfer (other than --------------------- a transfer pursuant to Section 1.12) to the extent not otherwise applicable to ------------ such Lender prior to such transfer. * * * 99 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. HCC INDUSTRIES INC., Address: as Borrower - ------- _____________________________ _____________________________ By: _____________________________ Attention: __________________ __________________ Name: ___________________________ Tel. No.: ___________________ Fax No.: ____________________ Title: _________________________ FLEET CAPITAL CORPORATION Address: Individually and as Agent - ------- _____________________________ _____________________________ BY: _____________________________ Attention: __________________ __________________ Name: ___________________________ Tel. No.: ___________________ Fax No.: ____________________ Title: __________________________ 100 Schedule 1.01 ------------- COMMITMENTS
REVOLVING A TERM B TERM TOTAL LENDER COMMITMENT COMMITMENT COMMITMENT COMMITMENT - ------------------------------------------------------------------ Fleet Capital $ 3,000,000 $ 9,000,000 $12,000,000 Corporation Union Bank of California, $ 2,750,000 $ 8,250,000 $11,000,000 N.A. Heller Financial, $ 1,750,000 $ 5,250,000 $ 4,000,000 $11,000,000 Inc. IBJ Schroder Bank & $ 2,500,000 $ 7,500,000 $10,000,000 Trust Company Pilgrim America $ 8,000,000 $ 8,000,000 Prime Rate Trust Antares Leveraged $ 8,000,000 $ 8,000,000 Capital Corp. Allstate Insurance $ 5,000,000 $ 5,000,000 Company The Provident $ 5,000,000 $ 5,000,000 National Bank - ------------------------------------------------------------------ TOTAL $10,000,000 $30,000,000 $30,000,000 $70,000,000 - ------------------------------------------------------------------
101 EX-10.2 11 AMENDMENT NO. 1 TO CREDIT AGREEMENT EXHIBIT 10.2 AMENDMENT NO. 1 TO CREDIT AGREEMENT AGREEMENT, dated as of May 6, 1997, among HCC INDUSTRIES INC., a Delaware corporation (the "Borrower"), the lending institutions listed on the signature pages hereof (collectively, the "Lenders") and FLEET CAPITAL CORPORATION, as Agent (the "Agent"). WHEREAS, the Borrower, the Lenders and the Agent are parties to that certain Credit Agreement, dated as of February 14, 1997, pursuant to which the Lenders have made two term loans to the Borrower in an aggregate principal amount of $60,000,000 and have agreed, subject to certain terms and conditions, to make revolving advances to the Borrower and to issue or to cause the issuance of letters of credit for the account of the Borrower (such agreement being referred to herein as the "Credit Agreement"); WHEREAS, in connection with the contemplated issuance by the Borrower of certain senior subordinated notes and the contemplated repayment in full of the aforesaid term loans with a portion of the proceeds of such issuance, the Borrower has requested that certain changes be made to the provisions contained in the Credit Agreement, and the Lenders and the Agent are agreeable to making such changes, subject to the terms and conditions herein contained. NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as follows: SECTION 1. CAPITALIZED TERMS. Capitalized terms used but not defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement shall be, and upon the fulfillment of the conditions set forth in Section 4 hereof is, amended as follows: 2.1 The phrase "Revolving Facility in an aggregate principal amount not to exceed $10,000,000" in the second WHEREAS clause of the Credit Agreement is deleted and the phrase "Revolving Facility in an aggregate principal amount not to exceed $20,000,000" shall be substituted therefor. 2.2 The phrase "1-1/4% in excess of the Base Rate as in effect from time to time" in Section 2.04(a) of the Credit Agreement is deleted and the phrase "equal to the Base Rate as in effect from time to time plus the Borrowing Base Utilization Fee Rate, if any, in effect from time to time" shall be substituted therefor. 2.3 Section 3.01 of the Credit Agreement is amended by (i) deleting the phrase "at a rate for each day equal to 1/2 of 1% per annum on the daily average of such Lender's Unutilized Revolving Commitment" in subsection (a) thereof and substituting therefor the phrase "at a rate for each day equal to 1/4 of 1% per annum on the daily average of such Lender's Unutilized Revolving Commitment (provided that until the first time that the sum of the aggregate outstanding principal balance of the Revolving Loans and Swingline Loans and the Letter of Credit Outstandings shall exceed $15,000,000 (but not thereafter), for purposes of this Section 3.01(a) only, each Lender's --------------- Unutilized Revolving Commitment shall be calculated as if such Lender's Revolving Commitment under clause (i) of the definition of Unutilized Revolving Commitment were the lesser of (x) such Lender's Revolving Commitment and (y) such Lender's Revolving Percentage of $15,000,000)", (ii) adding the phrase "plus the Borrowing Base Utilization Fee Rate, if any, then in effect" after the first usage of the phrase "Applicable Eurodollar Margin then in effect with respect to Revolving Loans" in subsection (b) thereof and after the phrase "(regardless of the fact that the Borrower may not be able to request Eurodollar Loans)" in such subsection (b), (iii) adding the phrase "(provided that notwithstanding this subsection (e)(ii) or the Fee Letters, no agency fee shall ------------------ be payable on the first or any subsequent anniversary of the Effective Date)" at the end of subsection (e) thereof immediately before the period and (iv) adding the following subsection (g) thereto: "(g) The Borrower agrees to pay to the Agent, for the account of each Non-Defaulting Lender pro rata on the basis of their respective --- ---- Adjusted Revolving Commitment Percentages, a utilization fee ("Utilization Fee") for the period from and including May 6, 1997 to, ------------------ but not including, the date the Total Revolving Commitment has been terminated, computed at a rate for each day equal to 1/4 of 1% per annum on the amount, if any, by which (x) the sum of the aggregate outstanding principal balance of the Revolving Loans and Swingline Loans plus the Letter of Credit Outstandings on such day exceeds (y) $10,000,000. Such Utilization Fee shall be due and payable in arrears on the first calendar day of each April, July, October and January and on the date upon which the Total Revolving Commitment is terminated." 2.4 Section 4.02(A) of the Credit Agreement is amended by (i) deleting the text of subsections (d), (e) and (f) thereof and substituting the phrase "[Intentionally Omitted]" therefor and (ii) deleting the text of subsection (c) thereof and substituting the following therefor: "Notwithstanding anything contained in this Section 4.02(A) or any --------------- other provision of this Agreement to the contrary, the Borrower shall make mandatory prepayments of principal on the Revolving Loans with respect to Asset Sales and/or reinvest the proceeds of such Asset Sales in accordance with the terms of the Senior Subordinated Debt Agreement, in either instance, within such time periods and in such amounts so that the Borrower shall not, with respect to any one or more Asset Sales, have any obligation under the Senior Subordinated Debt Agreement to make an offer to purchase any Senior Subordinated Debt. Any prepayments of the Revolving Loans 2 pursuant to the immediately preceding sentence shall on the date of such prepayment permanently reduce the Total Revolving Commitment in an amount equal to such prepayment (with the Revolving Commitment of each Lender being permanently reduced on the date of such prepayment by such Lender's Revolving Percentage of such permanent reduction in the Total Revolving Commitment)." 2.5 The remaining portion of Section 7.01(a) of the Credit Agreement commencing with the phrase ",together with a certificate..." is deleted. 2.6 The phrase ", subject to Section 8.05," in Section 7.08 of the ------------ Credit Agreement is deleted. 2.7 The text of each of subsections (a), (b), (c) and (f) of Section 7.11 of the Credit Agreement is deleted and the phrase "[Intentionally Omitted]" shall be substituted therefor. 2.8 Section 7.12 of the Credit Agreement is deleted and "7.12 [Intentionally Omitted]," shall be substituted therefor. - ---------------------- 2.9 The phrase "permitted to be incurred by Section 8.05" in Section ------------ 8.02(b) of the Credit Agreement is deleted and the phrase "not prohibited to be incurred hereunder" shall be substituted therefor. 2.10 Section 8.04 of the Credit Agreement is amended by (i) deleting from clause (c) thereof the phrase ",in each case only if, after giving effect to the incurrence thereof, the limit on Consolidated Capital Expenditures set forth in Section 8.05 would not be breached", (ii) deleting the word "and" at ------------ the end of clause (f) thereof, (iii) relettering clause (g) thereof as clause (h) and (iv) adding the following clause (g) after clause (f) thereof: "(g) the Senior Subordinated Debt and the subordinated guarantees of the Senior Subordinated Debt by the Subsidiary Guarantors, the terms and provisions (including, without limitation, as to subordination) of all of which shall be acceptable to the Agent and the Lenders and the proceeds of which Senior Subordinated Debt shall be used, in part, to pay in full the Subordinated Debt, the Term Loans and all other Obligations then outstanding (other than contingent reimbursement obligations with respect to the undrawn amount of then outstanding Letters of Credit); and" 2.11 Section 8.07 of the Credit Agreement is amended by (i) adding the phrase ",defease" immediately after the phrase "or acquire" in subsection (b) thereof and (ii) adding the phrase ", except that the Borrower may prepay in full the Subordinated Debt with proceeds of the Senior Subordinated Debt" to the end of such subsection 8.07(b). 3 2.12 The phrase "and the Borrower shall be permitted to redeem shares of common stock of the Borrower and contingent antidilution warrants of the Borrower, in each instance, which were issued in connection with the issuance of the Subordinated Debt (such stock and warrants representing approximately 6% of the common equity of the Borrower on a fully diluted basis) for an aggregate price, together with the amount of principal of the Subordinated Debt all of which is to be prepaid at the time of such redemption, of $22,500,000 with proceeds of the Senior Subordinated Debt" shall be added to Section 8.08(a)(iv) of the Credit Agreement after the word "Sellers". 2.13 Section 8.10 of the Credit Agreement is deleted and the following Section 8.10 shall be substituted therefor: "8.10 Fixed Charge Ratio. If on the last day of any Test Period ------------------ the remainder of (x) the lesser of the Total Revolving Commitment or the Borrowing Base minus (y) the sum of Revolving Loans, Swingline Loans and Letter of Credit Outstandings shall be less than $7,500,000, the Borrower will not permit the ratio of (x) Consolidated EBITDA for such Test Period minus the sum of Consolidated Capital Expenditures for such Test Period plus Consolidated Cash Taxes for such Test Period to (y) Consolidated Debt Payments for such Test Period (excluding payments on the Loans and any payments on the Subordinated Debt) to be less than 1.0 to 1.0." 2.14 Sections 8.05, 8.11, 8.12 and 8.13 of the Credit Agreement are deleted and the following shall be substituted therefor: "8.05 [Intentionally Omitted]. --------------------- 8.11 [Intentionally Omitted]. --------------------- 8.12 [Intentionally Omitted]. --------------------- 8.13 [Intentionally Omitted]." --------------------- 2.15 Section 9 of the Credit Agreement is amended by (i) adding the word "or" immediately after the semicolon at the end of subsection 9.10 thereof and (ii) adding a subsection 9.11 thereto which reads as: "9.11 Designated ---------- Senior Indebtedness. If any indebtedness or obligations of the Borrower or any - ------------------- of its Subsidiaries (other than the Obligations) shall be or become "Designated Senior Indebtedness" (as such term is defined in the Senior Subordinated Debt Agreement);". 4 2.16 The definitions of "Applicable Base Rate Margin" and "Applicable Eurodollar Margin" in Section 10 are deleted and the following shall be substituted therefor: '"Applicable Base Rate Margin" shall mean, for any day, 0%. --------------------------- "Applicable Eurodollar Margin" shall mean, for any day, 1.50%.' ---------------------------- 2.17 (A) The first sentence of the definition of "Borrowing Base" in Section 10 of the Credit Agreement is deleted and the following shall be substituted therefor: '"Borrowing Base" shall mean, as of any date of determination, -------------- the sum of (i) 85% of the book value of all Eligible Accounts of the Borrower and the Subsidiary Guarantors plus (ii) 60% of the value (determined at the lower of cost (calculated on a first in, first out basis) or market) of all Eligible Inventory of the Borrower and the Subsidiary Guarantors plus (iii) $8,000,000; provided that if for any -------- Test Period Borrowing Base Excess Cashflow shall be less than $2,500,000 (as determined by the Agent based upon the financial statements of the Borrower required to be delivered to the Lenders pursuant to Sections 7.01(a) and (b) hereof), then on the first day of ------------------------ the calendar month immediately after the month in which the Agent determined same and additionally on the last day of each fiscal quarter of the Borrower after such Test Period (until the first day of the calendar month immediately after the month in which the Agent has determined, based upon the aforesaid financial statements of the Borrower, that the same is no longer true for a subsequent Test Period), the amount then in effect in clause (iii) above shall be reduced by $285,714.29.' (B) A new sentence is added to the end of the definition of "Borrowing Base" in Section 10 of the Credit Agreement and reads as follows: "Clause (iii) of the first sentence of the Borrowing Base shall be zero at any time when a Default (to the extent arising from a failure of the Borrower to deliver any financial statements under Section ------- 7.01(a) or (b)) has occurred and is continuing for five or more days -------------- following the date delivery thereof is required under such Sections." 2.18 The definitions of "Borrowing Base Excess Cashflow" and "Borrowing Base Utilization Fee Rate" are added to Section 10 of the Credit Agreement in the correct alphabetical order and read as follows: 5 '"Borrowing Base Excess Cashflow" shall mean for any Test Period ------------------------------ that amount which is (a) Consolidated EBITDA for such period less (b) the sum of (i) Consolidated Cash Interest Expense for such period, (ii) income tax expense of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP plus (iii) Consolidated Capital Expenditures for such period (except to the extent financed through the incurrence of Indebtedness). "Borrowing Base Utilization Fee Rate" shall mean, for any day on ----------------------------------- which (x) the sum of the aggregate outstanding principal balance of the Revolving Loans and Swingline Loans plus the Letter of Credit Outstandings exceeds (y) $10,000,000, one-quarter of one percent (1/4%).' 2.19 The definition of "Change of Control" in Section 10 of the Credit Agreement is deleted and the following shall be substituted therefor: '"Change of Control" shall mean the occurrence of any of the ----------------- following events: (i) prior to the first public offering of common stock of the Borrower, the Permitted Holders (as defined below) cease to be the "beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act (as defined below)), directly or indirectly, of a majority in the aggregate of the total voting power of the Voting Stock (as defined below) of the Borrower, whether as a result of issuance of securities of the Borrower, any merger, consolidation, liquidation or dissolution of the Borrower, any direct or indirect transfer of securities or otherwise (for purposes of this clause (i) and clause (ii) below, the Permitted Holders shall be deemed to beneficially own any Voting Stock of a corporation (the "specified corporation") held by any other corporation (the "parent corporation") so long as the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent corporation); (ii) (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in clause (i) above except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after 6 the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Borrower; and (B) the Permitted Holders "beneficially own" (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Borrower than such other person 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 (as defined below) of the Borrower (for the purposes of this clause (ii), such other person shall be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation, if such other person "beneficially owns" (as defined in this clause (ii)), directly or indirectly, more than 30% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders "beneficially own" (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation 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 such parent corporation); (iii) (A) another corporation merges into the Borrower or the Borrower consolidates with or merges into any other corporation, or (B) the Borrower conveys, transfers or leases all or substantially all its assets (computed on a consolidated basis) to any person or group, in one transaction or a series of transaction other than any conveyance, transfer or lease between the Borrower and a Wholly Owned Subsidiary (as defined below) of the Borrower, in each case in one transaction or a series of related transactions with the effect that either (x) immediately after such transaction any person or entity or group (as so defined) of persons or entities (other than a Permitted Holder) shall have become the beneficial owner of securities of the surviving corporation of such merger or consolidation representing a majority of the combined voting power of the outstanding securities of the surviving corporation ordinarily having the right to vote in the election of directors or (y) the securities of the Borrower that are outstanding immediately prior to such transaction and which represent 100% of the combined voting power of the securities of the Borrower ordinarily having the right to vote in the election of directors are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately 7 after such transaction, at least a majority of the combined voting power of the securities of the surviving corporation ordinarily having the right vote in the election of directors; or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Borrower (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Borrower was approved by a vote of 60% of the directors of the Borrower then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrower then in office. For purposes of this definition of "Change of Control" and the definitions used within this definition (and only for such purposes), the following terms shall have the following meanings: "Affiliate" of any specified Person shall mean (i) any other --------- Person which, directly or indirectly, is in control of, is controlled by or is under common control with such specified Person or (ii) any other Person who is a director or officer (A) of such specified Person, (B) of any subsidiary of such specified Person or (C) of any Person described in clause (i) above. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Board of Directors" shall mean the Board of Directors of the ------------------ Borrower or any committee thereof duly authorized to act on behalf of such Board. "Capital Stock" of any Person shall mean any and all shares, ------------- interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated), including any Preferred Stock, but excluding any debt securities convertible into or exchangeable for such equity. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any successor statute or statutes thereto. 8 "Permitted Holders" shall mean Andrew Goldfarb, Windward Capital ----------------- Associates, L.P., Windward/Park HCC, L.L.C., Windward/Merchant, L.P., Windward/Merban, L.P. or any of their respective members or partners or any Affiliate of any of the foregoing. "Person" shall mean any individual, corporation, limited ------ liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock" as applied to the Capital Stock of any --------------- corporation, shall mean Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Restricted Subsidiary" shall mean any Subsidiary of the Borrower --------------------- that is not an Unrestricted Subsidiary. "Subsidiary" shall mean any corporation, association, ---------- partnership, limited liability company or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) the Borrower, (ii) the Borrower and one or more Subsidiaries or (iii) one or more Subsidiaries. "Unrestricted Subsidiary" has the meaning set forth in the Senior ----------------------- Subordinated Note Indenture as in effect on the date of execution thereof. "Voting Stock" of a corporation shall mean all classes of Capital ------------ Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly Owned Subsidiary" shall mean a Restricted Subsidiary all ----------------------- the Capital Stock of which (other than directors' 9 qualifying shares and shares held by other Persons to the extent such shares are required by applicable law to be held by a Person other than the Borrower or a Restricted Subsidiary) is owned by the Borrower or one or more Wholly Owned Subsidiaries.' 2.20 The definition of "Documents" in Section 10 of the Credit Agreement is amended by (i) deleting the word "and" contained after clause (c) thereof and substituting a comma therefor and (ii) adding the phrase "and (e) the Senior Subordinated Debt Documents" immediately after the phrase "Seller Note Documents" contained therein. 2.21 The date "February 14, 2002" in the definition of "Expiry Date" in Section 10 of the Credit Agreement is deleted and the date "May 6, 2002" shall be substituted therefor. 2.22 The phrase "(as such term is defined in the definition of "Change of Control")" in the definition of "Junior Subordinated Debt" is deleted and the following shall be substituted therefor: ",dated as of February 14, 1997, among the Borrower, Windward, Windward/Park, Windward/Merchant, Windward/Merban and the other stockholders of the Borrower party thereto, as such agreement may be amended, supplemented or otherwise modified from time to time" 2.23 The definition of "Margin Reduction Discount" in Section 10 of the Credit Agreement is deleted. 2.24 The phrase ",4.02(A)(c)" is added to the definition of "Revolving ---------- Commitment" in Section 10 of the Credit Agreement immediately after the number "3.03". 2.25 The following definitions are added to Section 10 of the Credit Agreement in the correct alphabetical order: '"Senior Subordinated Debt" shall mean the 10.75% Senior ------------------------ Subordinated Notes due 2007 of the Borrower issued pursuant to the Senior Subordinated Debt Agreement, as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Senior Subordinated Debt Agreement" shall mean the Indenture, ---------------------------------- dated as of May 6, 1997, by and among the Borrower, certain of the Subsidiary Guarantors and IBJ Schroder Bank & Trust 10 Company, as trustee, as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Senior Subordinated Debt Documents" shall mean the Senior ---------------------------------- Subordinated Debt and all agreements, documents and instruments entered into pursuant thereto or in connection therewith, as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof.' 2.26 A new Section 12.15 is added to the Credit Agreement and reads as follows: "12.15 Designated Senior Indebtedness. For purposes of the ------------------------------ Senior Subordinated Debt Agreement and the other Senior Subordinated Debt Documents, all Obligations (including, without limitation, those owing under the Guaranties) are designated as and shall be "Designated Senior Indebtedness" (as defined in the Senior Subordinated Debt Agreement)." 2.27 Schedule 1.01 to the Credit Agreement is deleted in its entirety and a new Schedule 1.01 shall be substituted therefor in the form of Exhibit A hereto. 2.28 Exhibit 7.01(e) to the Credit Agreement is deleted in its entirety and a new Exhibit 7.01(e) shall be substituted therefor in the form of Exhibit B hereto. SECTION 3. SWINGLINE LOANS. Each of the Borrower, the Lenders and the Agent agrees that, from and after the effectiveness of this Agreement and until agreed to in writing by Fleet, no Swingline Loans shall be made under the Credit Agreement and, to the extent that any Swingline Loans shall be outstanding at the time of the effectiveness of this Agreement, a Borrowing of Revolving Loans shall at the time of such effectiveness be deemed to be requested by the Borrower and shall be made to repay in full all such outstanding Swingline Loans (all as if Fleet had given notice to the Revolving Lenders under Section 1.01(e) of the Credit Agreement that its outstanding Swingline Loans be repaid at such time with a Borrowing of Revolving Loans). SECTION 4. EFFECTIVENESS. This Agreement and the amendments contemplated hereby shall become effective when: (a) counterparts hereof have been duly executed and delivered to the Agent on behalf of the Borrower, the Subsidiary Guarantors, the Lenders and the Agent; (b) the Agent shall be satisfied that, immediately after giving effect to the amendments contemplated hereby, there shall exist no Default or Event of Default both on the date hereof and on the date of (and after giving effect to) satisfaction of the conditions precedent under 11 the other clauses of this Section 4 and all representations and warranties contained herein, in the Credit Agreement and in the other Loan Documents shall be true and correct in all material respects both on the date hereof and on the date of (and after giving effect to) satisfaction of the conditions precedent under the other clauses of this Section 4 with the same effect as though such representations and warranties had been made on and as of each such date except to the extent that such representations and warranties relate to a specified date; (c) the Agent shall have received for the account of each Lender a new Revolving Note duly executed by the Borrower payable to the order of such Lender in a stated principal amount equal to such Lender's Revolving Commitment after giving effect to the amendments contemplated herein; (d) the Agent shall have received opinions, addressed to the Agent and each of the Lenders and dated the date hereof, from each of Skadden, Arps, Slate, Meagher & Flom LLP and O'Melveny & Myers, in form and substance satisfactory to the Agent; (e) the Agent shall have received certified resolutions and other evidence of all corporate and legal proceedings of the Borrower with respect to this Agreement, the Revolving Notes referred to in clause (c) above and the issuance of the Senior Subordinated Debt (as defined in Section 2 hereof) in form and substance satisfactory to the Agent; (f) the Borrower shall have received not less than $85,000,000 in gross cash proceeds from the issuance of the Senior Subordinated Debt, the terms of which (together with the terms of all other Senior Subordinated Debt Documents) shall be satisfactory to the Agent and the Lenders, and the proceeds thereof shall have been used to repay in full the Subordinated Debt (and the Agent shall have received evidence satisfactory to the Agent of such repayment) and all Obligations (other than contingent reimbursement obligations relating to the undrawn amount of outstanding Letters of Credit) outstanding on the date of effectiveness of this Agreement (including, without limitation, all principal, interest and fees accrued or owing under the Credit Agreement through such date and all breakage costs with respect to prepayment of Eurodollar Loans incurred by any Lender in connection with such repayments.) The Agent shall be satisfied that the issuance of the Senior Subordinated Debt shall have been consummated in accordance with all applicable laws, rules and regulations; (g) all of the Lenders (other than Fleet) shall have assigned their Revolving Commitments to Fleet pursuant to Assignment Agreements satisfactory to Fleet; and (h) the Agent shall have received such other agreements, certificates and documents as the Agent may reasonably request in connection with the transactions herein contemplated. 12 SECTION 5. INTEREST RATE. Each of the Borrower, the Lenders, the Agent, and, by its signature below, each of the Subsidiary Guarantors, agrees that where a Loan Document provides that any Obligations bear interest and/or be payable at the interest rate applicable to Base Rate Loans constituting Revolving Loans at such time, such interest rate shall be the interest rate then payable on any Base Rate Loans constituting Revolving Loans plus the Borrowing Base Utilization Fee Rate, if any, then in effect. SECTION 6. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, and all of which, taken together, shall constitute a single instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 7. REFERENCES TO CREDIT AGREEMENT. From and after the effectiveness of this Agreement and the amendments contemplated hereby, all references in the Credit Agreement to "this Agreement", "hereof", "herein", and similar terms shall mean and refer to the Credit Agreement, as amended and modified by this Agreement, and all references in other documents to the Credit Agreement shall mean such agreement as amended and modified by this Agreement. SECTION 8. RATIFICATION AND CONFIRMATION. The Credit Agreement is hereby ratified and confirmed and, except as herein agreed, remains in full force and effect. The Borrower represents and warrants that both on the date hereof and immediately after giving effect to the amendments herein contemplated (i) all representations and warranties contained in any Loan Document are and shall be true and correct in all material respects with the same effect as though such representations and warranties had been made both on and as of the date hereof and immediately after giving effect to the amendments herein contemplated (except to the extent that such representations or warranties expressly related to a specified date) and (ii) there exists and shall exist no Default or Event of Default. 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. HCC INDUSTRIES INC. By ______________________________ Name: Title: FLEET CAPITAL CORPORATION, individually and as Agent By ______________________________ Name: Title: By its signature below, each of the undersigned hereby (i) consents to the foregoing amendment of the Credit Agreement, (ii) agrees to Section 5 of the foregoing amendment, (iii) ratifies and confirms each of the Security Documents and Guaranties to which it is a party and the security interests and liens granted by it thereunder and (iv) agrees that pursuant to the Guaranty to which it is a party it continues to guarantee the Obligations (including, without limitation, any now or 14 hereafter created Obligations under the Credit Agreement as amended hereby) and the security interests and liens granted by it under the Security Documents shall continue to secure such Obligations. HERMETIC SEAL CORPORATION By ______________________________ Name: Title: NORFOLK AVON REALTY TRUST By ______________________________ Name: Title: GLASSEAL PRODUCTS, INC. By ______________________________ Name: Title: SEALTRON ACQUISITION CORP. By ______________________________ Name: Title: 15 SEALTRON, INC. By ______________________________ Name: Title: HCC INDUSTRIES INTERNATIONAL By ______________________________ Name: Title: 16 Exhibit A --------- Schedule 1.01 ------------- COMMITMENTS -----------
Lender Revolving Commitment Total Commitment ------ -------------------- ---------------- Fleet Capital Corporation $20,000,000 $20,000,000 ----------- ----------- TOTAL $20,000,000 $20,000,000
Exhibit B --------- Form of Compliance Certificate ------------------------------ EX-10.3 12 HCC INDUSTRIES STOCK OPTION PLAN EXHIBIT 10.3 HCC INDUSTRIES INC. 1997 STOCK OPTION PLAN Effective as of February 14, 1997, the Board of Directors of HCC Industries Inc. (the "Company") adopted the following 1997 Stock Option Plan (the "Plan"). Capitalized terms are defined in Section 20 of the Plan. 1. PURPOSE. The purpose of the Plan is to provide selected employees and directors with a proprietary interest in the Company through the granting of Non-qualified Stock Options that will: (a) increase the interest of the selected employees and directors in the Company's welfare; (b) furnish an incentive to the selected employees and directors to continue their services for the Company; and (c) provide a means through which the Company may attract able persons to either enter its employ or serve as directors. 2. ADMINISTRATION. The Plan will be administered by the Board. 3. PARTICIPANTS. The Board shall, from time to time, select the particular employees or directors of the Company and its Subsidiaries to whom options are to be granted, and who will, upon such grant, become participants in the Plan. 4. WITHHOLDING OF TAXES. Notwithstanding anything to the contrary contained herein, if a participant is entitled to receive shares of Common Stock upon exercise of an option, the Company shall have the right to require such participant, prior to the delivery of such shares and as a condition to such exercise, to pay to the Company the amount of any federal, state or local income taxes and other amounts which the Company is required by law to withhold. In its discretion (and to the extent not prohibited by any agreements to which the Company is a party), the Board may permit participants to satisfy withholding obligations by delivering previously owned shares. 5. SHARES SUBJECT TO PLAN. The Board may grant options under the Plan for the purchase in the aggregate of up to 22,887 shares of Common Stock, consisting of: (a) 6,393 shares of Common Stock, which may be granted to the employees of the Company and its Subsidiaries and shall be subject to the vesting requirements set forth in Section 10(a) of this Plan (the "Management Options"); (b) 7,103 shares of Common Stock, which may be granted to employees of the Company and shall be subject to the vesting requirements set forth in Section 10(b) of this Plan (the "Management 30% Performance Options"); (c) 7,103 shares of Common Stock, which may be granted to employees of the Company and shall be subject to the vesting requirements set forth in Section 10(c) of this Plan (the "Management 40% Performance Options"); (d) 710 shares of Common Stock, which may be granted to directors of the Company (other than any Windward/Park Nominee who is an employee of MetLife or any Windward Nominee (as defined in the Stockholders Agreement))and shall be subject to the vesting requirements set forth in Section 10(a) of this Plan (the "Director Options"); (e) 789 shares of Common Stock, which may be granted to directors of the Company (other than any Windward/Park Nominee who is an employee of MetLife or any Windward Nominee) and shall be subject to the vesting requirements set forth in Section 10(b) of this Plan (the "Director 30% Performance Options", and, together with the Management 30% Performance Options, the "30% Performance Options"); (f) 789 shares of Common Stock, which may be granted to directors of the Company (other than any Windward/Park Nominee who is an employee of MetLife or any Windward Nominee) and shall be subject to the vesting requirements set forth in Section 10(c) of this Plan (the "Director 40% Performance Options" and, together with the Management 40% Performance Options, the "40% Performance Options"); provided that the preceding share amounts may be adjusted to reflect, if deemed - -------- appropriate by the Board, any stock dividend, stock split, share combination, recapitalization or 2 the like, of or by the Company; provided further that, except as otherwise ---------------- specifically provided in any applicable stock option agreement, the number of shares subject to any option shall always be rounded down to the nearest whole number. Shares to be optioned and sold may be made available from either authorized but unissued Common Stock or Common Stock held by the Company in its treasury. Shares that by reason of the expiration of an option or otherwise are no longer subject to purchase pursuant to an option granted under the Plan may be re-offered under the Plan. The Board may, in its sole discretion, allocate any unallocated Director Options, Director 30% Performance Options or Director 40% Options to employees of the Company and its subsidiries. 6. ALLOTMENT OF SHARES. The Board shall determine the number of shares of Common Stock to be offered from time to time by grant of options to employees and directors of the Company and its Subsidiaries. The grant of an option to an employee or director shall be deemed neither to entitle the employee or director to, nor to disqualify the employee or director from, participation in any other grant of options under the Plan. All options under the Plan which are not granted effective as of February 14, 1997 are referred to herein as "Unallocated Options". 7. GRANT OF OPTIONS. All options under the Plan shall be granted by the Board. The grant of options shall be evidenced by stock option agreements containing such terms and provisions as are approved by the Board, but which are not inconsistent with the Plan; provided that the options granted effective as -------- of February 14, 1997 shall be evidenced by stock option agreements containing substantially the terms and conditions as those set forth on Exhibit A attached hereto (except as otherwise approved by the Board at the time of such grants). The Company shall execute stock option agreements upon instructions from the Board. 8. OPTION PRICE. The option price for any option under the Plan shall be determined by the Board. 9. OPTION PERIOD. The Option Period will begin on the date the option is granted, which will be the date the Board authorizes the option unless the Board specifies a later date, and will terminate as provided herein and in the applicable option agreement. No option may remain outstanding longer than 10 years from the date the option is granted. In addition to the vesting requirements of Section 10 hereof, the Board may provide in the applicable option 3 agreement for such other terms, conditions and restrictions with respect to the exercise of options as it may determine. The Board may provide for termination of the option in the case of termination of employment, termination of directorship or any other reason. 10. VESTING OF OPTIONS. (a) Vesting Requirements for Management Options and ----------------------------------------------- Director Options. Except as otherwise expressly set forth herein, Management - ---------------- Options and Director Options shall vest over five years subject to the performance goals set forth below, with 20% of the shares that are subject to such options vesting for each year in which the Company attains the target level set forth below relating to such year. Management and Director Option Vesting-- -------------------------------------- Performance Criteria --------------------
Performance EBITDA Minimum Period Target Level - ----------- -------------- 1998 fiscal year . . . . . . . . $21,800,000 1999 fiscal year . . . . . . . . $28,500,000 2000 fiscal year . . . . . . . . $32,600,000 2001 fiscal year . . . . . . . . $35,300,000 2002 fiscal year . . . . . . . . $37,600,000
Except as otherwise expressly set forth herein, in the event that the EBITDA Minimum Target Level is not reached in any given fiscal year, the Management Options and Director Options which could have vested in such year under this Section 10(a) shall not vest (such options shall be referred to as "Non-vested Options"). In the event that the Company attains the cumulative EBITDA target level set forth below, any Non-vested Options shall immediately vest. Subject to the last paragraph of this sub-paragraph (a), in the event that the Company does not attain any of the cumulative EBITDA target levels set forth below, each of the Non-vested Options shall immediately terminate without any action by the Company. 4 Management and Director Option Vesting-- -------------------------------------- Cumulative Performance Criteria -------------------------------
Cumulative Performance EBITDA Minimum Period Target Level - ----------- -------------- 3/30/97 - f/y/e 1999 . . . . . $ 50,300,000 3/30/97 - f/y/e 2000 . . . . . $ 82,900,000 3/30/97 - f/y/e 2001 . . . . . $118,500,000 3/30/97 - f/y/e 2002 . . . . . $156,100,000
In the event of a Change of Control (as defined below) prior to such fifth anniversary, 100% of all such outstanding options which have not vested (including both Non-vested Options relating to previous periods and unvested options relating to future periods) will vest if the Windward Group achieves, after giving effect to such Change of Control transaction, a 25% compounded, annual rate of return on its aggregate equity investment in the Company (the "Windward Return"); provided, however, that in the event of a sale -------- of less than all of the Windward Group's equity investment in the Company which results in the achievement of the Windward Return regardless of any return which could be achieved (and assuming for such purposes that the remainder of Windward's equity investment is sold for zero), then such sale shall be deemed a "Change of Control" in which the Windward Return has been achieved. (b) Vesting Requirements for 30% Performance Options. ------------------------------------------------ Except as otherwise expressly set forth herein, all outstanding 30% Performance Options shall vest in the event of a Change of Control in which the Windward Group achieves, after giving effect to such Change of Control transaction, a 30% compounded, annual rate of return on its aggregate equity investment in the Company (the "30% Windward Return"); provided, however, that in the event of a -------- sale of less than all of the Windward Group's equity investment in the Company which results in the achievement of the Windward 30% Return regardless of any return which could be achieved (and assuming for such purposes that the remainder of Windward's equity investment is sold for zero), then such sale shall be deemed a "Change of Control" in which the 30% Windward Return has been achieved. (c) Vesting Requirements for 40% Performance Options. ------------------------------------------------ Except as otherwise expressly set forth herein, all outstanding 40% Performance Options shall vest in the event of a Change of Control in which the Windward Group achieves, after giving effect to such Change of Control transaction, a 40% compounded, annual rate of return on its aggregate equity investment in the Company (the "40% Windward Return"); provided, however, that in the event of a -------- sale of less than all of the Windward Group's equity invest- 5 ment in the Company which results in the achievement of the 40% Windward Return regardless of any return which could be achieved (and assuming for such purposes that the remainder of Windward's equity investment is sold for zero), then such sale shall be deemed a "Change of Control" in which the 40% Windward Return has been achieved. (d) Change of Control; Winward Rate of Return. ----------------------------------------- (i) Changes of Control. Subject to the ------------------ provisos contained in the last paragraph of Section 10(a) and in Section 10(b) and Section 10(c) hereof, a "Change of Control," is defined as any transaction or series of related transactions in which all of the Company is sold to a third party unaffiliated with the Company, the Windward Group or any of their Affiliates (whether by merger, consolidation, sale of securities, sale of all or substantially all of the assets or any similar business combination) or in which the Windward Group and its Affiliates and their Permitted Transferees (as defined in the Stockholders Agreement) sell or otherwise dispose of all of the Common Stock held by such entities and persons (including, without limitation, pursuant to a public offering). Notwithstanding the foregoing (including the provisos contained in the last paragraph of Section 10(a) and in Section 10(b) and Section 10(c) hereof), the term "Change of Control" shall not include any sale or deemed sale or disposition of the Company to (A) any Affiliate of the Windward Group, (B) any entity or successor entity in which the Windward Group holds at least a majority of the total voting power of such entity or successor entity (or retains the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the members of the Board of Directors or other governing body of such entity or successor entity), (C) any entity in which the Company, directly or indirectly, owns a majority of the equity and voting interest (including a wholly owned subsidiary of the Company), or (D) any entity formed at the direction of the Company in connection with obtaining financing for the Company under an arrangement which provides the Company with an option to reacquire its assets or other properties or other similar financing arrangement. (ii) Calculating Windward Rate of Return. In ----------------------------------- calculating the compounded, annual rate of return on the Windward Group's aggregate equity investment in the Company (or any portion thereof) for purposes of Sections 10(a), 10(b) or 10(c), such amount shall be calculated based on the gross proceeds received by the Windward 6 Group relating to the relevant transaction(s) after any payment of, or reasonable provision for, any costs or liabilities relating to such transaction(s), including, without limitation, (A) any transaction costs, including, without limitation, any legal, investment banking, brokerage, accounting, consulting and other similar fees and expenses, reasonably incurred by the Windward Group and its Affiliates in connection with such transaction(s), (B) any liabilities or other amounts reasonably expected to arise (as determined prior to any such transaction by the Board in good faith) pursuant to any purchase price adjustments or indemnifica-tion obligations associated with such transaction(s) or pursuant to any pension or other post-employment benefit obligations of the Company and its Subsidiaries, any environmental matters relating to the Company and its Subsidiaries and any other similar liabilities for which the Windward Group and its Affiliates remain contingently liable (C) any indebtedness incurred by the Windward Group in connection with its acquisition of any part of its equity investment or required to be paid by the Windward Group by reason of any such sale or disposition, and (D) the dilutive effect of all options, warrants and similar securities, including, without limitation, Non-Vested Options, which vest as a result of the Change of Control. To the extent the proceeds of any transaction(s) include any securities or other property other than cash, the Board shall determine in good faith the fair market value of such securities or property. (e) Automatic Vesting. Unless otherwise provided in a stock ----------------- option agreement and notwithstanding any other provision contained in the Plan to the contrary (including the failure to attain any applicable performance goal relating to the vesting of any option granted hereunder), each option granted hereunder shall automatically vest and become fully exercisable on the seventh anniversary of the date of grant, so long as the optionee remains continually employed by the Company from the date of grant through such seventh anniversary. 11. RIGHTS IN THE EVENT OF DEATH OR DISABILITY. If a participant dies or becomes disabled (within the meaning of section 22(e)(3) of the Internal Revenue Code) while in the employ of the Company or while serving as a director of the Company but prior to termination of his right to exercise an outstanding option in accordance with the provisions of his or her stock option agreement without having totally exercised the option, the option may be exercised, to the extent of the shares with respect to which the option could have been exercised by the participant on the date of 7 the participant's death or disability, by (i) the participant's estate or by the person who acquired the right to exercise the option by bequest or inheritance or by reason of the death of the participant in the event of the participant's death, or (ii) the participant or his or her personal representative in the event of the participant's disability, provided the option is exercised prior to the date of its expiration or not more than 180 days from the date of the participant's death or disability whichever first occurs. After the expiration of such 180 day period, each such option shall immediately terminate without any action on the part of the Company. 12. PAYMENT. Full payment for shares purchased upon exercising an option shall be made in cash or by check or by tendering previously owned shares of Common Stock at the Fair Market Value per share at the time of exercise, or through such other cashless or other exercise procedure approved by the Company. No shares may be issued until full payment of the purchase price therefor has been made, and a participant will have none of the rights of a stockholder until shares are issued to him or her. 13. EXERCISE OF OPTION. Options granted under the Plan may be exercised during the Option Period, at such times, in such amounts, in accordance with such terms and subject to such restrictions as are set forth in the applicable stock option agreements. In no event may an option be exercised by, or may shares be issued to, a participant or Qualifying Family Member pursuant to an option (x) if any necessary listing of the shares on a stock exchange has not been accomplished or (y) unless and until such participant enters into an agreement with the Company pursuant to which such participant agrees, in accordance with the provisions of the Stockholders Agreement, to be bound by the terms and conditions of the Stockholders Agreement, including any requirements for shares issued upon exercise of options to carry a restrictive legend. The Board may offer a participant, upon such conditions and restrictions set forth on a schedule attached to his or her Option Agreement and in lieu of receipt from him or her of the exercise price and issuance of certificates for the shares of stock exercised, the right to elect payment in cash, Common Stock, or a combination of cash and Common Stock as the Board shall determine in an amount equal to the excess of the Fair Market Value per share on the date of exercise or other prescribed date over the per share exercise price under the option, multiplied by the number of shares covered by the option or portion thereof being exercised. 8 14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares of Common Stock covered by each outstanding option granted under the Plan and the option price shall be adjusted to reflect any stock dividend, stock split, share combination, and, as deemed appropriate by the Board, any exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like, of or by the Company. 15. NON-ASSIGNABILITY. Options may not be transferred other than to a Qualifying Family Member or by will or by the laws of descent and distribution. During a participant's lifetime, options granted to a participant may be exercised only by the participant or by a Qualifying Family Member. 16. INTERPRETATION. The Board shall interpret the Plan and shall prescribe such rules and regulations in connection with the operation of the Plan as it determines to be advisable for the administration of the Plan. The Board may rescind and amend its rules and regulations at any time. 17. AMENDMENT OR DISCONTINUANCE. The Board at any time and from time to time may suspend, terminate, modify or amend the Plan; provided that no -------- suspension, termination, modification or amendment of the Plan may adversely affect in any material respect (i) any option previously granted, unless the written consent of the participant to whom the option has been granted has been obtained, or (ii) any Unallocated Option, unless the written consent of Andrew Goldfarb or the holder of such option has been obtained. 18. EFFECT OF PLAN. Neither the adoption of the Plan nor any action of the Board shall be deemed to give any director, officer or employee any right to be granted an option to purchase Common Stock or any other rights except as may be evidenced by a stock option agreement, or any amendment thereto, duly authorized by the Board and executed on behalf of the Company and then only to the extent and on the terms and conditions expressly set forth therein. 19. TERM. Unless sooner terminated by action of the Board, this Plan shall terminate on February 14, 2007. The Board may not grant options under the Plan after that date, but options granted before or as of that date will continue to be effective in accordance with their terms. 9 20. DEFINITIONS. For the purpose of this Plan, unless the context requires otherwise, the following terms shall have the meanings indicated: (a) "Affiliate" shall have the same meaning as set forth in the Stockholders Agreement. (b) "Board" means the board of directors of the Company or a committee appointed by the board of directors to administer the Plan or any portion of the Plan. (c) "Cause" shall (a) with respect to the termination of employment of any employee of the Company or any of its Subsidiaries, have the same meaning as set forth in Section 1.1(f) of the Stockholders Agreement, and (b) with respect to the circumstances surrounding the removal of any director of the Company, have the same meaning as set forth in Section 2.6 of the Stockholders Agreement. (d) "Common Stock" means the Common Stock, par value $.10 per share, of the Company, and any and all shares of capital stock or other securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise), which may be issued in respect of, in exchange for, or in substitution for such shares of Common Stock. (e) "Company" means HCC Industries Inc., a Delaware corporation, and the successors and assigns thereof. (f) "Contingent Bonuses Expenses" means all payments made pursuant to the Contingent Bonus Plan of the Company. (g) "EBITDA" means the combined earnings before interest, federal and state income taxes, and depreciation and amortization of the Company and its subsidiaries determined in good faith by the Company in accordance with generally accepted accounting standards, increased in the amount and to the extent any of the following expense categories: Recapitalization Expenses, Management Agreement Expenses, compensation expenses related to directors' fees, and Contingent Bonuses Expenses had served to reduce reported EBITDA in the relevant reporting period. (h) "Fair Market Value" shall have the meaning ascribed to it in the Stockholders Agreement. 10 (i) "Good Reason" shall have the meaning ascribed to it in the Stockholders Agreement. (j) "Incentive Stock Option" means an option within the meaning of section 422 of the Internal Revenue Code. (k) "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended. (l) "Management Agreement Expenses" means expenses paid by the Company pursuant to the Financial Advisory Services Agreement, dated as of February 14, 1997 between Windward Capital Partners, L.P., a Delaware limited partnership, and the Company. (m) "Non-qualified Stock Option" means an option that is not an Incentive Stock Option. (n) "Option Period" means the period during which an option may be exercised pursuant to the terms of this Plan and the applicable option agreement. (o) "Plan" means this 1997 Stock Option Plan as amended from time to time. (p) "Qualifying Family Member" shall mean (i) the participant's spouse or children (including adopted children and step children) or (ii) a trust established for the exclusive benefit of such spouse and/or children who has been transferred options under the Plan pursuant to Section 15 hereof. (q) "Recapitalization Expenses" means all expenses of the Company (or paid by the Company) related to the transactions contemplated by the Stock Purchase Agreement, including, but not limited to, legal, accounting, investment banking, filing and financing fees. (r) "Stock Purchase Agreement" means the First Amendment and Restatement of the Stock Purchase and Sale Agreement, dated as of December 23, 1996, by and among the Company, HCC Windward L.L.C., a Delaware limited liability company, Windward Capital Associates, L.P., a Delaware limited partnership ("Windward"), Windward/Park HCC, L.L.C., a Delaware limited liability company ("Windward/Park"), Windward/Merban, L.P., a Delaware limited partnership ("Windward/Merban"), Windward/Merchant, L.P., a Delaware limited partnership ("Windward/Merchant"), Metropolitan Life 11 Insurance Company, a New York corporation, and each of the stockholders of the Company set forth on the signature pages thereto. (s) "Stockholders Agreement" means the Stockholders Agreement dated as of February 14, 1997, by and among the Company, the members of the Windward Group and the members of the Company's management listed in the Schedule of Management Stockholders attached thereto, and such other persons or entities who or which become parties to the Stockholders Agreement pursuant to the terms and conditions of the Stockholders Agreement. (t) "Subsidiary" shall have the same meaning as set forth in the Stock Purchase Agreement. (u) "Voluntary Termination" shall have the meaning ascribed to it in the Stockholders Agreement. (v) "Windward Group" means Windward, Windward/Park, Windward/Merban and Windward/Merchant, together with their Permitted Transferees (as defined in the Stockholders Agreement). 12 Exhibit A --------- HCC INDUSTRIES INC. STOCK OPTION AGREEMENT 1. Grant of Option. (a) This stock option is being granted --------------- pursuant to, and subject to the terms and conditions of, the HCC Industries Inc. 1997 Stock Option Plan (the "Plan") for employees and directors of HCC Industries Inc. (the "Company") and its Subsidiaries. Terms that are not defined in this Agreement will have the meanings set forth in the Plan. (b) The Company hereby grants to [insert name] (the "Option Holder"), the following options covering an aggregate of _____ shares of Common Stock: [a Management Option which shall entitle the holder to purchase from the Company a total of _____ shares of Common Stock at a cash amount per share equal to [$ ], upon the terms and conditions set forth in both the Plan and this Agreement.] [a Management [30%/40%] Performance Option which shall entitle the holder to purchase from the Company a total of _____ shares of Common Stock at a cash amount per share equal to [$ ], upon the terms and conditions set forth in both the Plan and this Agreement.] [a Director Option which shall entitle the holder to purchase from the Company a total of ________ shares of Common Stock at a cash amount per share equal to [$ ], upon the terms and conditions set forth in both the Plan and this Agreement.] [a Director [30%/40%] Performance Option which shall entitle the holder to purchase from the Company a total of _____ shares of Common Stock at a cash amount per share equal to [$ ], upon the terms and conditions set forth in both the Plan and this Agreement.] (c) If a particular installment covers a fractional share, such installment will be rounded down to the nearest whole share. In the event of the Option Holder's termination of employment or termination from service as a director for whatever cause, the option will be exercisable only to the extent that the Option Holder could have exercised it on the date of his or her termination of employment or termination of service as a director. Notwithstanding the foregoing, the Board may accelerate the exercisability of any option or portion thereof at any time. 2. Exercise of Option. The exercise of this option in accordance ------------------ with Section 12 of the Plan will entitle the Option Holder to purchase shares of Common Stock. 3. Subject to Plan. This option and the grant and exercise --------------- thereof are subject to the terms and conditions of the Plan, which is incorporated herein by reference and made a part hereof, but the terms of the Plan shall not be considered an enlargement of any benefits under this Agreement. In addition, this option is subject to any rules and regulations promulgated pursuant to the Plan, now or hereafter in effect. 4. Term. This option will automatically terminate at the first ---- of the following: (a) 5 p.m. on [insert date 10 years from date of grant]. (b) 5 p.m. on the date 180 days following the date the Option Holder's employment with the Company and its Subsidiaries, or service as a director of the Company, terminates by reason of the Option Holder's death or disability. (c) immediately if the Option Holder's (i) employment with the Company and its Subsidiaries is terminated for Cause or terminates by reason of Voluntary Termination without Good Reason or (ii) service as a director of the Company is terminated for Cause, as the case may be. (d) 5 p.m. on the date 30 days following the date the Option Holder's employment with the Company and its Subsidiaries, or service as a director of the Company, terminates for a reason other than under Section 4(b) or (c) hereof. Notwithstanding any other provision contained herein or in the Plan, this option, to the extent not then vested, shall immediately and automatically terminate upon the termination of the Option Holder's employment with the 2 Company or its Subsidiaries or service as a director of the Company, as the case may be, for any reason whatsoever. 5. Automatic Vesting. Notwithstanding any other provision ----------------- contained in the Plan or this Agreement to the contrary (including the failure to attain any applicable performance goal relating to the vesting of this option), this option shall automatically vest and become fully exercisable on [February 14, 2004], so long as the Option Holder remains continually employed by the Company from the date of this Agreement through such vesting date. 6. Who May Exercise. Except as provided below, this option may be ---------------- exercised only by the Option Holder or a Qualifying Family Member. If the Option Holder dies or becomes disabled (within the meaning of section 22(e)(3) of the Internal Revenue Code) prior to the termination date specified in Section 4 hereof without having exercised the option as to all of the shares covered hereby, the option may be exercised, to the extent vested, at any time prior to the earlier of the dates specified in Sections 4(a) and (b) hereof by (i) a Qualifying Family Member or the Option Holder's estate or a person who acquired the right to exercise the option by bequest or inheritance or by reason of the death of the Option Holder in the event of the Option Holder's death, or (ii) the Option Holder or his or her personal representative in the event of the Option Holder's disability, subject to the other terms of this Agreement, the Plan and applicable laws, rules and regulations. 7. Restrictions on Exercise. This option: ------------------------ (a) may be exercised only with respect to full shares and no fractional share of stock shall be issued (it being understood that any such fractional shares will be rounded down to the nearest whole share); (b) may not be exercised in whole or in part and no cash or certificates representing shares subject to such option shall be delivered, if any requisite approval or consent of any governmental authority of any kind having jurisdiction over the exercise of options will not have been secured; (c) may be exercised, to the extent vested, only if at all times during the period beginning with the date of the granting of the option 3 and ending on the date 30 days prior to the date of exercise the Option Holder was an employee of either the Company or a Subsid- iary of the Company or was a director of the Company; provided, if the Option Holder's continuous employment or service as a director is (i) terminated by death or disability, the option may be exercised in accordance with Section 5 or (ii) terminated for Cause or terminates by reason of Voluntary Termi- nation without Good Reason, the option will terminate as provided in Section 4(c); and (d) any shares issued (or issuable) upon the exercise thereof shall be subject to the "call" provisions of Article VII of the Stockholders Agreement. 8. Manner of Exercise. Subject to such adminis-trative ------------------ regulations as the Board may from time to time adopt, the Option Holder or beneficiary must, in order to exercise this option: (a) give written notice to the Company of the exercise price and the number of shares that he or she will purchase and furnish an undertaking to make payment of such exercise price in United States dollars before issuance of such shares; or (b) give written notice to the Company of the exercise price and the number of shares for which he or she is requesting approval from the Company to tender other shares of Common Stock in exchange for option shares. Any such notice shall include an undertaking to furnish or execute such documents as the Company in its discretion shall deem necessary (i) to evidence such exercise, in whole or in part, of the option evidenced by this Agreement, (ii) to determine whether registration is then required under the Securities Act of 1933 or any other law, as then in effect, (iii) to comply with or satisfy the requirements of the Securities Act of 1933 or any other law, as then in effect and (iv) to confirm and agree that the Common Stock issuable upon exercise of this option is subject to the terms and provisions of the Stockholders Agreement. 4 In addition, if an exercise under paragraph (b) above is requested, the notice shall include an undertaking to tender to the Company promptly after receipt of approval by the Company of exercise of this option or portion thereof by payment of Common Stock, full payment in Common Stock in exchange for the shares being purchased hereunder. If the Company denies the request made pursuant to paragraph (b) above, the exercise shall be rescinded. The Company shall advise the Option Holder or beneficiary in writing, within ten business days after the first Board of Directors meeting following the date of exercise, whether the Company approves the exchange of Common Stock for option stock being purchased. The Company must receive full payment in United States dollars or the appropriate number of shares of Common Stock, whichever applies, of the option exercise price within five business days after the date of the Company's notice, unless the Company denies the request set forth in paragraph (b) above or extends the time of payment. 9. Non-Assignability. This option is not assignable or ----------------- transferable by the Option Holder except to Qualifying Family Members or by will or by the laws of descent and distribution. 10. Rights of Stockholder. The Option Holder will have no rights --------------------- as a stockholder with respect to any shares covered by this option until the issuance of a certificate or certificates to the Option Holder for the shares. Except as otherwise provided in Section 10 hereof, no adjustment will be made for dividends or other rights for which the record date is prior to the issuance of such certificate or certificates. 11. Capital Adjustments. The number of shares of Common Stock ------------------- covered by this option and the option price thereof will be subject to such adjustment as the Board deems appropriate to reflect any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like, of or by the Company. 12. Law Governing. THIS AGREEMENT SHALL BE GOVERNED BY AND ------------- INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF. 5 13. Date of Grant. The effective date of the grant of this option is as of [February 14, 1997]. 6 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Option Holder, to evidence his or her consent and approval of all the terms hereof, has duly executed this Agreement, effective as of the date specified in Section 12 hereof. HCC INDUSTRIES INC. By:__________________________ Name: Title: -------------------------- Option Holder 7 EX-10.5 13 CONTINGENT BONUS PLAN OF HCC INDUSTRIES INC. EXHIBIT 10.5 CONTINGENT BONUS PLAN of HCC INDUSTRIES INC. 1. PURPOSE. The Company has determined that in order to attract, retain ------- and motivate highly qualified personnel to serve in key positions in the Company, this Plan should be adopted to cause to be granted to such Key Employees Contingent Bonuses. 2. DEFINITIONS. ----------- "ACTION" means any action, claim, complaint, investigation, petition, suit, or other proceeding, whether civil or criminal, in law or in equity, or before any arbitrator or Governmental Entity. "ADDITIONAL BONUS AMOUNTS" means the amounts earned on the Vested Bonus Amounts pursuant to Section 6.2. "AFFILIATE" means any Person directly or indirectly controlling or controlled by or under direct or indirect common control with another Person. "AGREEMENT" means any Contingent Bonus Agreement entered into between the Company and a Participant pursuant to this Plan. "BONUS AMOUNT A" means a contingent bonus pool of $3,000,000, which may become vested pursuant to Section 5.1 or 5.4. "BONUS AMOUNT B" means an additional contingent bonus pool of $3,000,000, which may become vested pursuant to Section 5.2 or 5.4. "BONUS UNITS" means Bonus Units granted pursuant to this Plan. Each Bonus Unit represents a 1% interest in each of Bonus Amount A and Bonus Amount B, subject to adjustment as provided in the last sentence of Section 6.3 of the Plan. There shall be no more than 100 Bonus Units granted under the Plan. "BUSINESS DAY" means any day other than a Saturday, Sunday or legal holiday under the laws of the State of California or any other day on which banking institutions located in such state are authorized or required by law or other governmental action to close. "CHANGE OF CONTROL" means the occurrence of any of the following events: (a) the sale, lease, transfer or other disposition of all or substantially all of the assets of Company or its subsidiaries (taken as a whole) to any Person or related group of Persons other than the Stockholders; (b) the merger or consolidation of Company with or into another corporation, or the merger of another corporation into Company, with the effect that Persons other than the Stockholders (and their Permitted Transferees (as defined in the Stockholders Agreement) or any "group" (as defined in the rules promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended) of which any Stockholder or their Permitted Transferees is a member) hold more than 50% of the total voting power on a fully diluted basis entitled to vote in the election of directors, managers or trustees of the surviving corporation of such merger or the corporation resulting from such consolidation; and (c) any other event which results in a Person or a "group" other than the Stockholders (and their Permitted Transferees or any "group" of which any Stockholder or their Permitted Transferees is a member) holding, directly or indirectly, in the aggregate more than 50% of common stock outstanding at such time, after giving effect to the issuance of all shares of common stock issuable (i) upon conversion of all convertible securities outstanding at such time and all convertible securities issuable upon the exercise of any warrants, options and other rights outstanding at such time, and (ii) upon exercise of all other warrants, options and other rights outstanding at such time. 2 "CLOSING" means the consummation of the transactions contemplated by the Stock Purchase and Sale Agreement. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMITTEE" means the Contingent Bonus Committee administering this Plan as provided in Section 12. "COMPANY" means HCC Industries Inc., a Delaware corporation. "CONTINGENT BONUSES" means Bonus Amount A and Bonus Amount B. "CONTINGENT BONUSES EXPENSES" means all payments made pursuant to the Plan. "CONTINGENT NOTES" means notes issued under and having terms and conditions consistent with this Plan. "CREDIT AGREEMENT" means the Credit Agreement dated as of February 14, 1997, among the Company, each financial institution which is a party thereto (each, a "Lender" and collectively, the "Lender") and Fleet Capital Corporation, as agent for the Lenders, as in effect at the Closing, and as the same may be amended or extended and as the same may be renewed, refinanced or replaced, provided that only one Credit Agreement may be in effect at any time for purposes of this Plan. "DISABILITY" means a Participant's inability to substantially render services to the Company or its Subsidiaries for more than 60 days out of any consecutive 120 day period because of physical or mental illness or incapacity, as determined in good faith by the Committee. "EBITDA" means the combined earnings before interest, federal and state income taxes, and depreciation and amortization of the Company and its subsidiaries determined in good faith by the Company in accordance with GAAP. 3 "EFFECTIVE DATE" means the Effective Date of the Plan, as stated in Section 13. "GAAP" means generally accepted accounting principles in the United States, as in effect from time to time. "GOVERNMENTAL ENTITY" means any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal, or other instrumentality of any government (including any regulatory or administrative agency), whether federal, state, or local, domestic or foreign. "INDEBTEDNESS" means, without duplication, (i) the principal of, premium (if any) and interest and related fees and expenses (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all capital lease obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement; (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including any guarantees of such obligations and dividends, but, in each case, only to the extent such Person is responsible or liable for such obligations or dividends; (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any Lien (as defined in the Subordinated Note Agreement) on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (vii) to the extent not otherwise included in this definition, any 4 interest rate or currency swap agreement, any interest rate cap agreement, any interest rate collar agreement or other similar agreement or arrangement designed to protect such Person or any subsidiary against fluctuations in interest rates or currency. Notwithstanding any of the foregoing provisions of this definition of "Indebtedness", (1) the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with generally accepted accounting principles, and (2) Indebtedness shall not include (A) any liability for federal, state, local or other taxes, (B) trade accounts payable and other accrued expenses arising in the ordinary course of business, or (C) with respect to the deferred purchase price of property, obligations which are due within six months after the date of placing such property in service or taking delivery and title thereto. The amount of Indebtedness of any Person at any date shall be (x) the outstanding balance at such date of all unconditional obligations as described above, and (y) the maximum liability determined by such Person's Board of Directors, in good faith, as reasonably likely to occur, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "INTERESTS" means the interests in Contingent Bonuses, Vested Bonus Amounts and Additional Bonus Amounts granted to a Participant pursuant to the terms of this Plan and the Agreement. "IPO" means an underwritten initial public offering pursuant to a registration statement filed and declared effective under the Securities Act of 1933, as amended, and the rules and regulations promulgated under it. "KEY EMPLOYEE" means an employee of the Company or a Subsidiary or an Affiliate who is engaged in a managerial, supervisorial, administrative, professional, technical or advisory capacity to the Company or any of its Subsidiaries. 5 "MANAGEMENT AGREEMENT" means the Financial Advisory Services Agreement, dated as of February 14, 1997 between Windward Capital Partners, L.P., a Delaware limited partnership, and the Company. "MANAGEMENT AGREEMENT EXPENSES" means expenses paid by the Company pursuant to the Management Agreement. "OPERATING EBITDA" means EBITDA increased in the amount and to the extent any of the following expense categories: Recapitalization Expenses, Management Agreement Expenses, compensation expenses related to directors' fees, and Contingent Bonuses Expenses had served to reduce reported EBITDA in the relevant reporting period. "PARTICIPANT" means a Key Employee who has been granted an Interest. "PARTICIPANT REPRESENTATIVE" means Andy Goldfarb or his successor elected by the holders of a majority of Bonus Units. "PAYMENT DATE" means the dates that payments are due, payable and required to be made pursuant to Section 6. "PERSON" means any individual, partnership, limited liability company, joint venture, firm, corporation, association, bank, trust or other enterprise, whether or not a legal entity, or any government or political subdivision or any agency, department or instrumentality thereof. "PLAN" means this Contingent Bonus Plan. "RECAPITALIZATION EXPENSES" means all expenses of the Company (or paid by the Company) related to the transactions contemplated by the Stock Purchase and Sale Agreement, including, but not limited to, legal, accounting, investment banking, filing and financing fees. "REVIEWING ACCOUNTANTS" has the meaning set forth in Section 5.5(C). 6 "SENIOR DEBT" shall have the meaning ascribed to such term in the Subordinated Note Agreement, dated as of February 14, 1997 (the "Subordinated Note Agreement", among the Company, Windward/Merban and Windward/Merchant and MetLife provided, however, that if any Senior Debt -------- ------- (as such term is defined in the Subordinated Note Agreement) under the Credit Agreement is refinanced or replaced (as so conclusively determined by resolution of the Board), in whole or in part, Senior Debt shall mean the principal of and premium, if any, and interest (whether accrued prior to or after the commencement of any insolvency proceeding under any law under any Bankruptcy Law (as defined in the Subordinated Note Agreement) and whether or not allowed in such proceeding) on and other amounts owing with respect to Indebtedness of the Company or its subsidiaries, whether outstanding on the date hereof or thereafter created, incurred, assumed or guaranteed, and, in each such case, all renewals, extensions and refunding thereof, and any Indebtedness of a successor corporation issued in exchange for or in replacement thereof, unless, in each case, by the terms of the instrument creating or evidencing the Indebtedness it is provided that such Indebtedness is not superior in right of payment to any Bonus Units. "STOCKHOLDERS" means the stockholders of HCC Industries Inc. immediately following the Closing of Stock Purchase and Sale Agreement. "STOCK PURCHASE AND SALE AGREEMENT" means the First Amendment and Restatement of the Stock Purchase and Sale Agreement dated as of December 23, 1996, among the Company, HCC Windward L.L.C., a Delaware limited liability company, Windward Capital Associates, L.P., a Delaware limited partnership ("Windward"), Windward/Park HCC, L.L.C., a Delaware limited liability company ("Windward/Park"), Windward/Merban, L.P., a Delaware limited partnership ("Windward/Merban"), Windward/Merchant, L.P., a Delaware limited partnership ("Windward/Merchant"), Metropolitan Life Insurance Company, a New York corporation ("MetLife"), and each of the stockholders of the Company set forth on the signature pages thereto. 7 "SUBSIDIARY" means any corporation or other entity whose outstanding voting stock is 50% or more owned by the Company or a Subsidiary or Affiliate of the Company as a group. "VEST" (or variants thereof) refer to the vesting of Contingent Bonuses upon the achievement of certain Company goals pursuant to Section 5. The identity of the Participants to whom the Vested Bonus Amounts will become payable will be determined at the applicable Payment Date pursuant to Section 6. "VESTED BONUS AMOUNT A" means an amount equal to Bonus Amount A if vested pursuant to Section 5.1 or 5.4. "VESTED BONUS AMOUNT B" means an amount equal to Bonus Amount B if vested pursuant to Section 5.2 or 5.4. "VESTED BONUS AMOUNTS" means the total of all Contingent Bonuses which become vested pursuant to the terms of this Plan. "VESTING DATE" has the meaning assigned to it pursuant to Section 5.6. 3. INTERESTS SUBJECT TO THE PLAN. Each Interest shall consist of the number ----------------------------- of Bonus Units determined by the Committee; the number of Bonus Units in each Interest need not be the same. There shall be no more than 100 Bonus Units granted under the Plan. 4. PARTICIPATION. ------------- 4.1. DETERMINATION OF GRANTS. The Committee shall determine those Key ----------------------- Employees to whom Interests shall be granted and the number of Bonus Units to be granted to each. The Committee may (but shall have no obligation to) regrant any Bonus Units that have been terminated under Section 6.3. To the extent any terminated Bonus Units are not regranted in accordance with the provisions of the Plan, the corresponding portions of Bonus Amount A and Bonus Amount B (and any other corresponding amounts) shall be paid in 8 accordance with the last sentence of Section 6.3 of the Plan. 4.2. GRANT OF INTERESTS. Such grant shall be accomplished by the ------------------ preparation of an Agreement providing for the grant to the Participant of Bonus Units. Such grant shall be accepted by the Participant by his execution of the Agreement (and its return to the Company) prior to a reasonable date specified in the Agreement. Failure to so execute and return the Agreement shall constitute a refusal of the grant, in which event such grant shall be deemed not to have been made. 5. VESTING OF CONTINGENT BONUSES. Contingent Bonuses will be deemed ----------------------------- "vested" and payable only if the Company achieves, as determined in good faith by the Board of Directors of the Company (the "Board") based upon the books and record of the Company (but subject to the objection procedure in accordance with Section 5.5(C)), the following Operating EBITDA during the specified time periods or achieves the following equity market capitalization or equity valuation criteria following an IPO or Change in Control of the Company: 5.1. BONUS AMOUNT A. Bonus Amount A shall vest if the Company obtains -------------- $22 million of Operating EBITDA on the latest twelve month basis within 15 months of the first day of the Company's fiscal year 1998, commencing on such day. 5.2. BONUS AMOUNT B. Bonus Amount B shall vest if the Company obtains -------------- $28 million of Operating EBITDA on a latest twelve month basis within 30 months of the first day of the Company's fiscal year 1998, commencing on such day. 5.3. INDEPENDENT TESTS. The foregoing tests set forth in Section 5.1 ----------------- and 5.2 above shall be independent, that is, if the test under Section 5.1 is not met and Bonus Amount A does not vest, the test under Section 5.2 may still be met during the 30 month period and Bonus Amount B shall vest; provided that if the test under -------- ---- Section 5.1 is met, the same month shall not be 9 used more than once in determining whether the tests under Sections 5.1 and 5.2 are met. 5.4. IPO OR CHANGE IN CONTROL. If the Company completes an IPO or a ------------------------ sale resulting in a Change in Control of the Company within 30 months of the Effective Date, any Contingent Bonuses will vest in the amounts set forth below and become payable if (A) (x) the equity market capitalization of the Company is greater than $175 million for 20 consecutive trading days subsequent to the IPO (but prior to 30 months from the Effective Date), or (y) the equity valuation of the Company in a sale (after reduction for (i) Net Indebtedness (as defined in the Stockholders Agreement), (ii) all obligations which become due and payable (without duplication from clause(i)) as a result of the transaction and (iii) all costs and expenses incurred in connection with such transaction, excluding any fees on such transaction paid to Windward Capital Partners, L.P.) is greater than $175 million in which case all Contingent Bonuses shall vest in their entirety and become payable on the Vesting Date, in each case, as determined in good faith by the Board. (B) the Company achieves, as determined in good faith by the Board (subject to the objection procedure in accordance with Section 5.5(c)), the applicable Operating EBITDA requirements under Section 5.1 or Section 5.2, or both, within the applicable time periods in which case the Contingent Bonuses shall vest in the applicable amounts set forth in Sections 5.1 and 5.2 and be paid in accordance with the terms hereof. 10 5.5. DETERMINATION AND VERIFICATION OF OPERATING EBITDA. -------------------------------------------------- (A) Delivery of Financial Statements and Operating EBITDA ----------------------------------------------------- Figure. ------ As soon as practicable and in any event within 90 days after the end of each fiscal quarter, Company shall deliver to each Participant and Participant Representative: (1) a consolidated balance sheet of Company and its Subsidiaries as at the end of such year, (2) consolidated statements of income of Company and its subsidiaries for such year; and (3) the monthly EBITDA and Operating EBITDA for Company for such year along with documentation setting forth in reasonable detail the calculations made by Company in reaching its determination, including without limitation all adjustments made to EBITDA in reaching Operating EBITDA. Each of the aforementioned items shall be prepared in accordance with GAAP, consistently applied, and delivery of each item shall be accompanied by a certificate of Company's chief financial officer certifying each as complete and correct. (B) Review and Comment. Participant Representative shall have ------------------ the right to review and comment upon the Operating EBITDA determination. The Company and Participant Representative shall use their best efforts to resolve any dispute that may develop concerning the computation of Operating EBITDA. (C) Formal Objections and Independent Review. If after such ---------------------------------------- discussion, the Company and Participant Representative can not resolve their dispute regarding Operating EBITDA, Participant Representative may deliver written notice of such objection to the Board. Such written notice shall set forth in reasonable detail the bases for such objection. If such a notice is de- 11 livered, the Company, by action of the Board, shall promptly appoint an independent, nationally recognized public accounting firm reasonably acceptable to the Participant Representative (the "Reviewing Accountants") to review the Company's determination of Operating EBITDA. If Participant Representative objects to the Board's selection, Participant Representative may make its own selection of an independent, nationally recognized public accounting firm and the two firms shall in their sole discretion choose another independent, nationally recognized public accounting firm to review the Company's determination of Operating EBITDA and such firm shall become the Reviewing Accountants. The fees and expenses of the Reviewing Accountants and the fees and expenses of the Company and documented costs incurred by the Company in connection with such review shall be borne by the Company, except that if Operating EBITDA as determined by the Reviewing Accountants is equal to or lower than Operating EBITDA as determined by the Company, then all such fees, expenses and costs shall be borne by Participant Representative who delivered such notice of objection (and the Company shall be entitled to receive a written undertaking to such effect from such Participant Representative as a condition to the effectiveness of such objection). All resolutions of disputes with respect to determinations of Operating EBITDA by the Reviewing Accountants shall be final, binding and conclusive on the Company, Participant Representative and Participants. 5.6. VESTING DATE. The Vesting Date upon which amounts shall vest ------------ under Sections 5.1, 5.2 and 5.4(B) shall be the last day of the 12th month of the 12 month period during which the Company 12 successfully achieved the applicable Operating EBITDA requirement. The Vesting Date upon which amounts shall vest under Section 5.4(A) shall be the first to occur of (i) the 20th trading day of the 20 trading day period commencing on the trading day immediately following the trading day on which the Company achieves a sale satisfying the equity market capitalization requirement of Section 5.4(a)(x) or (ii) the day on which the Company consummates a sale satisfying the equity valuation requirement of Section 5.4(a)(y). 6. BONUS PAYMENTS. -------------- 6.1. PAYMENT DATE. Subject to Section 6.4, 6.5 and 6.6 (which may ------------ provide earlier applicable Payment Dates), the Payment Date for Vested Bonus Amount A and Vested Bonus Amount B shall be the third anniversary of the applicable Vesting Date with respect to such Vested Bonus Amounts. In accordance with Section 6.3, 100% of Vested Bonus Amount A and Vested Bonus Amount B shall be paid to Participants who hold Bonus Units on the Payment Date applicable thereto. 6.2. ADDITIONAL BONUS AMOUNTS. Additional Bonus Amounts shall be ------------------------ earned on Vested Bonus Amounts from each applicable Vesting Date until paid in full at a rate per annum equal to 10%. A Payment Date for the Additional Bonus Amounts shall arise semi-annually, with the Additional Bonus Amounts payable in arrears, commencing first semi-annual date for payment of Additional Bonus Amounts following the applicable Vesting Date. All computations of Additional Bonus Amounts shall be made by Company on the basis of a 360-day year, as the case may be, for the actual number of days elapsed in the relevant period (including the first day but excluding the last day). In no event shall the rate payable on these Vested Bonus Amounts exceed the maximum rate of interest permitted to be charged under applicable law. 6.3. TERMINATION OF UNITS AND RIGHT TO PAYMENTS. All of a ------------------------------------------ Participant's Bonus Units will be ter- 13 minated immediately when such Participant is no longer employed by the Company or any of its Subsidiaries or Affiliates for any reason. If a Participant is no longer an employee of the Company or any of its Subsidiaries or Affiliates on account of such Participant's death or Disability, a percentage of such Participant's Bonus Units shall not be subject to termination, with such percentage determined by reference to a fraction, the numerator of which is the number of full 12 month periods from the earliest Vesting Date under this Plan and the denominator of which is 3. All payments of Vested Bonus Amounts and Additional Bonus Amounts shall be made to Participants who have Bonus Units on the Payment Date related to such payments. Each Participant who holds Bonus Units as of an applicable Payment Date shall receive a portion of the Vested Bonus Amounts or Additional Bonus Amounts to be paid on the Payment Date determined by multiplying such Vested Bonus Amounts and Additional Bonus Amounts by a fraction, the numerator of which is the number of Bonus Units held by such Participant and the denominator of which is the total number of Bonus Units held by all Participants as of such Payment Date. 6.4. DEFERRAL. If payment of any amount otherwise due to be paid -------- hereunder is not permitted because of existing Senior Debt covenants, the payment thereof shall be deferred to the earliest such time as payment of such amounts would not result in an event of default under existing Senior Debt agreements. Any amounts deferred pursuant to this Section 6.4 shall bear interest at a rate per annum equal to 10%, which interest shall be paid currently with the payment of the amount deferred. The identity of the Participants to whom the deferred amount is to be paid and the allocation of the deferred amount among such Participants pursuant to Section 6.3 shall be determined as if such payment had been made on the originally applicable Payment Date. 6.5. SUBORDINATION. ------------- 14 (A) Agreement To Subordinate. The Company agrees, and each ------------------------ Participant by accepting any Bonus Units agrees, that the right to receive payment evidenced by a vested Bonus Unit is subordinated in right of payment, to the extent and in the manner provided in this Section 6.5, to the prior payment in full in cash of all Senior Debt, and that the subordination is for the benefit of the holders of Senior Debt, and only indebtedness of the Company which is Senior Debt shall rank senior to a vested Bonus Unit (and in such case only to the extent and on the terms and conditions set forth herein). Reference to Bonus Units in this Section 6.5 shall include Bonus Units and Additional Bonus Units. (B) Liquidation, Dissolution, Bankruptcy. Upon any ------------------------------------ distribution to creditors of the Company in a liquidation or a total or partial dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property (any of the foregoing, a "Proceeding"): (1) holders of Senior Debt shall be entitled to receive payment in full in cash of the Senior Debt or provisions satisfactory to the holders of Senior Debt shall be made for such payment before any Participant shall be entitled to receive any payment in respect of any Bonus Unit; and (2) until the Senior Debt is paid in full, in cash, any distribution to which any Participant would be entitled but for this Section 6.5 shall be made to holders of Senior Debt as their interests may appear, except that any Participant may receive securities that are subordinated to Senior Debt to at least the same extent as a vested Bonus Unit. 15 (C) Default on Senior Debt. If any Senior Debt is not paid ---------------------- when due and such default is not cured or waived in writing and the holder of such Senior Debt has not waived in writing the benefits of this sentence, the Company may not make any payment in respect of any vested Bonus Unit or acquire or redeem any vested Bonus Unit for cash or property other than Capital Stock (as defined in the Subordinated Note Agreement) of the Company or securities that are subordinated to Senior Debt to at least the same extent as a vested Bonus Unit unless and until such default shall have been cured or waived in writing or shall have ceased to exist or such Senior Debt shall have been discharged in accordance with its terms or the holders of such Senior Debt shall have waived in writing the benefit of this sentence, after which the Company shall resume making any and all required payments in respect of a vested Bonus Unit including any missed payments. (Such period during which such payments, acquisitions and redemptions are prohibited being hereinafter referred to as a "Payment Default Blockage Period"). In addition, during the continuance of any other event of default with respect to any Senior Debt pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, upon the receipt by the Company of written notice thereof from or on behalf of the holders of at least a majority of the principal amount of such Senior Debt (taken together as one class) or, in the case of any Senior Debt issued pursuant to the Credit Agreement, the Agent under the Credit Agreement (the "Agent") on behalf of such holders of Senior Debt, the Company may not make any payment in respect of any vested Bonus Unit or acquire or redeem 16 any vested Bonus Unit for cash or property other than Capital Stock of the Company or securities that are subordinated to Senior Debt to at least the same extent as any vested Bonus Unit for a period (the "NonMonetary Default Blockage Period") commencing on the date of receipt of such notice until the earliest of (x) 180 days thereafter (or, if the holders of the Senior Debt are then stayed from exercising remedies under the Credit Agreement until the earlier of 240 days thereafter or the expiration of such stay), (y) the date, if any, on which the Senior Debt to which such event of default relates is discharged in accordance with its terms or such event of default is waived in writing by the holders of such Senior Debt or otherwise cured and (z) the date, if any, on which such Non-Monetary Default Blockage Period shall have been terminated by written notice to the Company from or on behalf of such holders of Senior Debt or, in the case of any Senior Debt issued pursuant to the Credit Agreement, the Agent on behalf of such holders of Senior Debt, after which, in the case of clause (x), (y) or (z), the Company shall, subject to the first sentence of this clause (C), resume making any and all required payments in respect of a vested Bonus Unit, including any missed payments. No more than one notice of a Non-Monetary Default Blockage Period may be given by or on behalf of the holders of any Senior Debt or, in the case of any Senior Debt issued pursuant to the Credit Agreement, the Agent on behalf of such holders of Senior Debt in any 365 day period and no more than four (4) such notices in the aggregate may be given by or on behalf of such holders after the date hereof. Notwithstanding anything herein to the contrary, there must be 120 consecutive days in any 365-day period in which no NonMonetary Default Blockage Period is in effect. No event of default (other than 17 an event of default arising under the Credit Agreement) that existed or was continuing (it being acknowledged that any subsequent action that would give rise to an event of default pursuant to any provision under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose) on the date of commencement of any Non-Monetary Default Blockage Period with respect to the Senior Debt initiating such Non-Monetary Default Blockage Period shall be, or shall be made, the basis for the commencement of a second Non- Monetary Default Blockage Period by the representative for, or the holders of, such Senior Debt whether or not within a period of 365 consecutive days, unless such event of default shall have been cured or waived for a period of not less than ninety (90) consecutive days. (D) When Distribution Must Be Paid Over. In the event that a ----------------------------------- vested Bonus Unit is declared due and payable before its Payment Date, then no payment or distribution of any kind or character shall be made in respect of a vested Bonus Unit and the holders of the Senior Debt outstanding at the time of such declaration shall be entitled to receive payment in full in cash of all amounts due (including by reason of acceleration), or appropriate provision satisfactory to the holders of such Senior Debt shall be made for such payment, before such Participant is entitled to receive any payment or distribution of any kind or character (including any payment which may be payable by reason of the payment of any other Indebtedness of the Company being subordinate to the payment of a vested Bonus Unit by the Company). Notwithstanding the foregoing, if a distribution is made to any Participant that pursuant to this Section 6.5 should not have been made to them, such Participant shall hold it in trust for 18 holders of Senior Debt and pay it over to them as their interests may appear, provided that the holders of Senior Debt seeking such payment notify such Participant within sixty (60) days of such Participant's receipt thereof that such payment should not have been made. (E) Subrogation. After all Senior Debt is paid in full and ----------- until a vested Bonus Unit is paid in full, each Participant shall be subrogated (pro rata with the holders --- ---- of all Indebtedness of the Company and its subsidiaries which, by its express terms, ranks Pari Passu with a ---- ----- vested Bonus Unit and is entitled to like rights of subrogation) to the rights of holders of Senior Debt to receive the payments or distributions applicable to the Senior Debt. Any payment or distribution made under this Section 6.5 to holders of Senior Debt which otherwise would have been made to a Participant except for the provisions of this Section 6.5 shall, as between the Company, its creditors (other than the holders of the Senior Debt) and such Participant, be deemed to be a payment by the Company to or on account of the Senior Debt, and no payments or distributions to such Participant of cash, property or securities by virtue of the subrogation herein provided shall, as between the Company, its creditors (other than the holders of the Senior Debt) and such Participant, be deemed to be a payment to or on account of a vested Bonus Unit, it being understood that the provisions of this Section 6.5 are and are intended solely for the purpose of defining the relative rights of such Participant on the one hand and the holders of Senior Debt on the other. (F) Relative Rights. This Section 6.5 defines the relative --------------- rights of a Participant and holders of Senior Debt. Nothing herein shall: 19 (1) impair, as between the Company and a Participant, the obligations of the Company, which are absolute and unconditional, to make any payment in respect of any vested Bonus Unit in accordance with its terms; or (2) prevent a Participant from exercising any available remedies, subject to the rights of holders of Senior Debt to receive distributions otherwise payable to such Participant. (G) Subordination May Not Be Impaired by the Company. No right ------------------------------------------------ of a holder of Senior Debt to enforce the subordination of the indebtedness evidenced by a vested Bonus Unit shall be impaired by any act or failure to act by the Company or by its failure to comply with the Plan. (H) Reinstatement. If, at any time, all or part of any ------------- payment with respect to Senior Debt previously made by the Company or any other Person is rescinded for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Company or such other Person), the subordination provisions set forth herein shall continue to be effective or be reinstated, as the case may be, all as though such payment had not been made. (I) Non-Impairment. Each Participant agrees and consents that, -------------- without notice to or assent by them, and without affecting the liabilities and obligations of the Company and the rights and benefits of the holders of the Senior Debt set forth in this Section 6.5: (1) the obligations and liabilities of the Company and any other party or parties for or upon the Senior Debt may, from time to time, be increased, renewed, refinanced, extended, modified, amended, restated, compromised, 20 supplemented, terminated, waived or released; (2) the holders of Senior Debt, and any representative or representatives acting on behalf thereof, may exercise or refrain from exercising any right, remedy or power granted by or in connection with any agreements relating to the Senior Debt; and (3) any balance or balances of funds with any holder of Senior Debt at any time outstanding to the credit of the Company may, from time to time, in whole or in part, be surrendered or released, all as the holders of any Senior Debt, or any representative or representatives acting on behalf thereof, may deem advisable, and all without impairing, abridging, diminishing, releasing or affecting the subordination of a vested Bonus Unit to the Senior Debt. (J) No Modification. The provisions of this Section 6.5 and --------------- any definitions used in this Section 6.5 are for the benefit of the holders from time to time of Senior Debt and, so long as any Senior Debt or any commitments with respect thereto remain outstanding, may not be modified, rescinded or canceled in whole or in part; provided that -------- the provisions of this Section 6.5 may be modified, amended or supplemented by the Company and the applicable Participant upon obtaining the prior written consent of the holders of at least a majority of the principal amount of the Senior Debt (taken together as one class) or in the case of any Senior Debt issued pursuant to the Credit Agreement, the Agent on behalf of such holders of Senior Debt. (K) Waivers. To the extent permitted by applicable law, each ------- Participant and the 21 Company hereby waive (A) notice of acceptance hereof by the holders of the Senior Debt and (B) all diligence in the collection or protection of or realization upon the Senior Debt. (L) Enforcement of Rights. The Company and each Participant --------------------- hereby expressly agree that the holders of Senior Debt may enforce any and all rights derived herein by suit, either in equity or at law, for specific performance of any agreement contained in this Section 6.5 or for judgment at law and any other relief whatsoever appropriate to such action or procedure. (M) Proofs of Claim. If, while any Senior Debt is --------------- outstanding, any Proceeding occurs, each Participant shall, to the extent permitted by applicable law, duly and promptly take such action as the holders or the Agent (so long as any Senior Debt remains outstanding under the Credit Agreement) of Senior Debt may reasonably request (which request may only be given by the Agent so long as any Senior Debt remains outstanding under the Credit Agreement) to collect any payment hereunder to which the holders of Senior Debt may be entitled hereunder or under the Notes, and to file appropriate claims or proofs of claim in respect thereof. Upon the failure of any Payee to take any such action, the Agent is hereby irrevocably authorized and empowered (in its own name or otherwise and to the extent permitted by applicable law), but shall have no obligation, to demand, use, collect and receive every payment or distribution referred to hereunder and to file claims and proofs of claim with respect thereof and Participant hereby appoints the Agent as attorney-in-fact for the person designated by such holders of the Senior Debt to take any and all actions permitted by this paragraph to be taken by Participant; pro- ---- 22 vided, however, that such person shall only be permitted ----- ------- to file such proofs of claim upon notice to Participant and to the extent that Participant has failed to make such filings by the date which is ten (10) days prior to the last date on which Participant is permitted to make such filings as a matter of applicable Bankruptcy Law. 6.6. PREPAYMENTS. To the extent not prohibited by the Credit ----------- Agreement, the Company, by action of the Board, shall have the right at any time and from time to time to prepay the Vested Bonus Amounts and/or accrued and unpaid Additional Bonus Amounts in whole or in part upon 5 days notice, and the date of payment chosen by the Company shall become the applicable Payment Date as to the amounts so paid. 6.7. DELAY BY PARTICIPANT. No failure or delay on the part of any -------------------- Participant to exercise any right, power or privilege under this Plan and no course of dealing between the Company and any Participant shall impair such right, power or privilege or operate as a waiver of any default or an acquiescence therein, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 6.8. BEST PAYMENT PROVISION. If the vesting of any Bonus Amount upon a ---------------------- Change of Control alone or together with all other payments and the value of any benefit received or to be received by Participant in connection with a Change in Control (whether pursuant to the Plan or any other plan, arrangement or agreement or agreement with the Company, any entity whose actions result in a Change in Control or any entity affiliated with the Company or such entity would result in such Bonus Amount being subject to excise tax under Section 4999 of Code, then the applicable Participant's payment under the Plan will be either (a) the full payment provided that the shareholder approval require- 23 ments described in Section 280G(b)(5)(A)(ii) and (b)(5)(B) of the Code and the Treasury Regulations thereunder are met with respect to such payment or (b), if such shareholders approval requirements are not met, such lesser amount that would result in no portion of the payment being subject to excise tax under Section 4999 of the Code. All determinations required to be made under this Section 6.7 will be made by Coopers & Lybrand or any other nationally recognized accounting firm that is the Company's outside auditor at the time of such determination, which firm must be reasonably acceptable to the applicable Participant (the "Accounting Firm"). The Company will cause the Accounting Firm to provide detailed supporting calculations of its determination to the Company and the applicable Participant. Notice must be given to the Accounting Firm within fifteen business days after an event entitling any Participant to payment under the Plan. All fees and expenses of the Accounting Firm will be borne solely by the Company. The Accounting Firm's determination must be made with substantial authority (within the meaning of Section 6662 of the Code). 7. TRANSFERABILITY. Neither the interests nor any interest therein or --------------- amount payable in respect thereof, may be sold, assigned, transferred, pledged or otherwise disposed of, alienated or encumbered, either voluntarily or involuntarily. 8. NON-CONTRIBUTORY NATURE OF THE PLAN. Interests shall be granted on a ----------------------------------- non-contributory basis with respect to Participants and shall be awarded solely on the basis of merit as determined by the Committee. 9. PLACE OF GRANTING AND ACCEPTANCE. All Agreements shall be executed in -------------------------------- accordance with the laws of the State of Delaware. 10. CONTINUANCE OF EMPLOYMENT. The Plan and any Agreements entered into by ------------------------- any Participant are not offers or agreements of employment. Notwithstanding any commitment of the Key Employee to remain in the 24 employ of the Company, the grant of an Interest shall not confer upon --- the Key Employee any right with respect to the continuation of his or her employment by Company or any Subsidiary or Affiliate or alter or interfered in any way with the right of any such entity at any time to terminate such Key Employee's employment or to change the compensation of the Key Employee or other terms of his or her employment; and neither shall these terms alter or in any way affect the rights of the Company or any Subsidiary or Affiliate or the Key Employee under any other written employment agreement between them, except as expressly provided herein. 11. ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE. ----------------------------------------------------- 11.1. ADMINISTRATION. This Plan shall be administered by the -------------- Contingent Bonus Committee of the Board. The Committee shall consist of not less than three members, who shall be appointed from time to time by the Board and shall be subject to removal by the Board, with or without cause. In the absence of the appointment of such a Committee, the Board of Directors of the Company shall act as such Committee. Any action of the Committee with respect to administration of the Plan shall be taken by majority vote or written consent of a majority of its members. 11.2. AWARDS; INTERPRETATION. Subject to the provisions of this Plan, ---------------------- the Committee shall have the authority (A) to construe and interpret this Plan, (B) to define the terms used therein, (C) to adopt, amend and rescind rules and regulations relating to the Plan, (D) to determine the individuals to whom Interests shall be granted, the time to times at which Interests shall be granted, the number of Bonus Units awarded, the schedule of vesting of such Interests, if any, and (E) to make all other determinations necessary or advisable for the administration of the Plan, except only that the full Board of Direc- 25 tors shall have authority to grant Interests to (and to make the other determinations referred to in clause (D) above with respect to) any member of the Committee. 11.3. BINDING DETERMINATIONS. Any action taken by, or inaction of, the ---------------------- Company, any Subsidiary, Affiliate, the Board or the Committee relating to or pursuant to this Plan shall be within the absolute discretion of that entity or body and shall be conclusive and binding on all Participants and their legal representatives and beneficiaries. 11.4. DELEGATION. The Committee may delegate ministerial, non- ---------- discretionary functions to individuals who are officers or employee of the Company. 12. EFFECTIVE DATE OF PLAN. The Effective Date of this Plan shall be ---------------------- February 14, 1997. 13. MISCELLANEOUS. ------------- 13.1. COMPLIANCE. This Plan, the granting and vesting of Interests ---------- under this Plan and the delivery of Agreements under this Plan are subject to compliance with all federal and state laws, rules and regulations (including, but not limited to, state and federal securities laws) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any Interests or Agreements delivered under this Plan shall be subject to such restrictions as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements. 13.2. CHOICE OF LAW. This Plan, the Agreements, all documents ------------- evidencing the Interests and all other related documents shall be gov- 26 erned by, and construe in accordance with the laws of the State of Delaware. 13.3. SEVERABILITY. If any provision shall be held by a court of ------------ competent jurisdiction to be invalid and unenforceable, the remaining provisions of this Plan shall continue in effect. 13.4. NON-EXCLUSIVITY OF PLAN. Nothing in this Plan shall limit or be ----------------------- deemed to limit the authority of the Company or the Committee to grant awards or authorize any other compensation, with or without reference to the Interests, under any other plan or authority. 13.5. CAPTIONS. Captions and headings are given to the sections and -------- subsections of this Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision hereof. 13.6. AMENDMENTS. Subject to Section 6.5, the Board at any time and ---------- from time to time may suspend, terminate, modify or amend the Plan; provided that no suspension, termination, modification or amendment of the Plan may adversely affect in any material respect any Bonus Unit previously granted, unless the written consent of the Participant to whom the Bonus Unit has been granted has been obtained. 13.7. CONTINUATION OF PLAN. Notwithstanding any other provision -------------------- hereof, if, within the 30 months immediately following the Effective Date (the "Plan Period"), the Company completes an IPO or a Change in Control occurs and any Contingent Bonus is outstanding under the Plan immediately prior to such completion or occurrence, this Plan shall not be amended after such completion or occurrence in any way which detrimentally affects the Interest of any Partici- 27 pant hereunder and the Plan shall not be terminated until payment of any Contingent Bonus which vests during the remaining Plan Period has been made in accordance with the terms hereof, unless, in the case of any Participant, as such Participant so consents. [END OF PLAN] 28 CONTINGENT BONUS PLAN AWARD AGREEMENT This Agreement (this "Agreement") is entered into this _______ day of _______________, 1997, by and between HCC Industries Inc., a Delaware corporation, (the "Company") and the person named on the signature page hereof ("Participant"). A. The Company has adopted a Contingent Bonus Plan (the "Plan"), which is attached hereto as Exhibit A and incorporated herein by this reference. Capitalized terms set forth in this Agreement shall have the meaning given to them in the Plan. B. Pursuant to the Plan, Key Employees of the Company or its Subsidiaries or Affiliates, may be granted merit-based Interests; C. Participant has demonstrated exceptional merit in his service to the Company as determined by the Committee of the Company; and D. Participant has been designated as a Key Employee and is therefore eligible to participate in the Plan; NOW, THEREFORE, the parties hereby agree as follows: 1. Participant is hereby granted, and by execution and return of the Agreement hereby accepts, an Interest in the Plan. The number of Bonus Units constituting the Interest are set forth on the signature page hereof. 2. Participant acknowledges that the Bonus Units granted hereunder will be terminated immediately if Participant is no longer an employee of the Company or one of its Subsidiaries or Affiliates and that, in order for the Participant to receive any payment under the Plan, Participant must hold Bonus Units (and be so employed) at the Payment Date applicable to such payment. 3. Participant agrees to abide by and be subject to all of the terms and conditions of the Plan 29 as presently in effect or as it may hereafter be amended or modified by the Company. 4. Participant is acquiring the Interest for his own account, as principal, for investment and not with a view to the sale or distribution of all or any part of such Interest. 5. Neither this Agreement nor the Interest is transferable or assignable by Participant and any such attempted transfer or assignment shall render this Agreement and such Interest void. 6. This Agreement shall be binding upon the heirs, executors, administrators, and successors of Participant. 7. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware. Participant's Interest shall commence as specified in, and shall be subject to, the provisions of such documents as described above. Neither the Company nor the Committee shall have any obligations to Participant other than as may be provided in such documents. DATED: _____________, 19__ HCC INDUSTRIES INC. By:______________________________ Accepted as of ______________, 19__ Participant:______________________________ Bonus Units:__________ 30 EX-10.7 14 EMPLOYMENT AGREEMENT--ANDREW GOLDFARB EXHIBIT 10.7 EMPLOYMENT AGREEMENT TABLE OF CONTENTS ----------------- Page No. ------- 1. Employment . . . . . . . . . . . . . . . . . . . . 1 1.1 Term.. . . . . . . . . . . . . . . . . . . . 1 1.2 Title; Reporting; Policies . . . . . . . . . 1 1.2.1 Title; Duties. . . . . . . . . . . 1 1.2.2 Reporting. . . . . . . . . . . . . 1 1.2.3 Policies . . . . . . . . . . . . . 1 1.3 Place; Travel. . . . . . . . . . . . . . . . 1 1.3.1 Place of Employment. . . . . . . . 1 1.3.2 Travel . . . . . . . . . . . . . . 1 1.4 Exclusive; Outside Activities. . . . . . . . 2 1.5 Consulting Services. . . . . . . . . . . . . 2 2. Compensation and Benefits. . . . . . . . . . . . . 3 2.1 Base Salary. . . . . . . . . . . . . . . . . 3 2.2 Bonuses. . . . . . . . . . . . . . . . . . . 3 2.3 Benefit Plans. . . . . . . . . . . . . . . . 3 2.4 Expenses.. . . . . . . . . . . . . . . . . . 3 2.5 Car. . . . . . . . . . . . . . . . . . . . . 3 2.6 D&O Insurance. . . . . . . . . . . . . . . . 3 2.7 Vacation . . . . . . . . . . . . . . . . . . 3 2.8 Indemnity. . . . . . . . . . . . . . . . . . 4 2.9 Section 162(m) of the Code . . . . . . . . . 4 3. Termination. . . . . . . . . . . . . . . . . . . . 4 3.1 By Company . . . . . . . . . . . . . . . . . 4 3.1.1 Death. . . . . . . . . . . . . . . 4 3.1.2 Unavailability . . . . . . . . . . 4 3.1.3 Good Cause . . . . . . . . . . . . 4 3.1.4 Without Cause. . . . . . . . . . . 4 3.2 By Employee. . . . . . . . . . . . . . . . . 4 3.3 Notice of Termination. . . . . . . . . . . . 4 3.4 Effect of Termination. . . . . . . . . . . . 5 3.4.1 Death; Unavailability; Good Cause; or Termination by Employee Without Good Reason. . . . . . . . . . . . 5 3.4.2 Without Good Cause or for Good Reason . . . . . . . . . . . . . . 5 3.4.3 Waiver . . . . . . . . . . . . . . 5 3.4.5 Mitigation . . . . . . . . . . . . 6 3.4.6 Effect on Benefit Programs . . . . 6 3.4.7 Cooperation. . . . . . . . . . . . 6 3.5 Best Payment Provision . . . . . . . . . . . 6 (i) TABLE OF CONTENTS ----------------- Page No. ------- 4. Other Agreements . . . . . . . . . . . . . . . . . 7 4.1 Confidential Information; etc. . . . . . . . 7 4.1.1 Confidential Information . . . . . 7 4.1.2 Clients; Employees . . . . . . . . 7 4.1.3 Publications . . . . . . . . . . . 7 4.1.4 Documents. . . . . . . . . . . . . 7 4.2 Work Product . . . . . . . . . . . . . . . . 8 4.2.1 Ownership of Work Product. . . . . 8 4.2.2 Nonassignable Section 2870 Inventions . . . . . . . . . . . . 8 4.2.3 Employee Disclosure Obligation . . 8 4.3 Insurance. . . . . . . . . . . . . . . . . . 9 4.4 Assistance in Litigation . . . . . . . . . . 9 4.5 Withholding Taxes. . . . . . . . . . . . . . 9 4.6 Medical Examination. . . . . . . . . . . . . 9 5. Dispute Resolution . . . . . . . . . . . . . . . . 9 5.1 Dispute Resolution . . . . . . . . . . . . . 9 5.2 Rights and Remedies Upon Breach. . . . . . . 10 5.2.1 SPECIFIC PERFORMANCE . . . . . . . 10 5.2.2 ACCOUNTING . . . . . . . . . . . . 10 5.2.3 SEVERABILITY OF COVENANTS. . . . . 10 5.2.4 BLUE-PENCILING . . . . . . . . . . 10 5.2.5 ENFORCEABILITY IN JURISDICTIONS. . 11 5.3 Prevailing Party . . . . . . . . . . . . . . 11 5.4 Successor. . . . . . . . . . . . . . . . . . 11 6. General Provisions . . . . . . . . . . . . . . . . 11 6.1 Assignment . . . . . . . . . . . . . . . . . 11 6.2 Amendments; Waivers. . . . . . . . . . . . . 11 6.3 Integration. . . . . . . . . . . . . . . . . 11 6.4 Interpretation; Governing Law. . . . . . . . 12 6.5 Headings . . . . . . . . . . . . . . . . . . 12 6.6 Counterparts . . . . . . . . . . . . . . . . 12 6.7 Successors and Assigns . . . . . . . . . . . 12 6.8 Expenses . . . . . . . . . . . . . . . . . . 12 6.9 Representation by Counsel; Interpretation. . 12 6.10 Time is of the Essence . . . . . . . . . . . 12 6.11 Notices. . . . . . . . . . . . . . . . . . . 12 (ii) TABLE OF CONTENTS ----------------- Page No. ------- Exhibit A - Defined Terms A-1 Exhibit B - Bonuses--Base Case & Downside Case B-1 Exhibit C - Employee-Owned Invention Notification C-1 (iii) EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is entered into as of February 14, 1997 by and between HCC Industries Inc., a Delaware corporation (the "COMPANY") and Andrew Goldfarb ("EMPLOYEE"). The parties agree as follows. The capitalized terms on EXHIBIT A have the meanings respectively assigned to them, which apply equally to the singular and plural forms of the terms. 1. EMPLOYMENT ---------- 1.1 TERM. The Company agrees to employ Employee for the Term, and Employee ---- accepts such employment. 1.2 TITLE; REPORTING; POLICIES. -------------------------- 1.2.1 TITLE; DUTIES. Employee will serve as President of the Company. ------------- Employee will faithfully perform the duties of Employee's office to the best of Employee's ability. Employee will have such duties and responsibilities as are generally consistent with such position in a company of comparable present and projected size. Employee will also serve without additional compensation in such executive capacities for one or more direct or indirect subsidiaries of the Company as the Board from time to time requests. Employee will also, subject to Employee's election as such, serve as a member of the Board, as well as a member of any committee of the Board to which Employee may be elected or appointed. 1.2.2 REPORTING. Employee will report directly to the Board of the --------- Company and will be subject to the direction of the Board and to such limits on Employee's authority as the Board from time to time imposes. 1.2.3 POLICIES. Employee will be subject to and comply with the -------- policies, standards and procedures generally applicable to senior executives of the Company from time to time. 1.3 PLACE; TRAVEL. ------------- 1.3.1 PLACE OF EMPLOYMENT. Employee will be based at the Company's ------------------- principal executive offices in Los Angeles, California. 1.3.2 TRAVEL. Employee will be expected to engage in frequent travel ------ as is required for the proper discharge of Employee's duties. 1 1.4 EXCLUSIVE; OUTSIDE ACTIVITIES. Employee will devote full and exclusive ----------------------------- business time to the Company. The foregoing will not prohibit Employee from: (a) passive ownership of real or personal property; (b) owning less than 5% of any class of securities of a corporation that is publicly held; (c) owning any class of securities of or being a partner in any other corporation or business not competing directly or indirectly with the Company or providing goods or services to the Company if, in each case, (x) such interests are held for investment, (y) Employee does not become involved in active management of an operating business, and (z) such ownership or management does not materially interfere with the performance of Employee's duties. Employee may also hold directorships or similar positions with nonprofit, charitable, community or other similar organizations, so long as such activities do not materially interfere with the performance of Employee's duties. Any other directorships or similar positions must be approved by the Board, which approval will not be unreasonably withheld. 1.5 CONSULTING SERVICES. Following any Date of Termination, in the Company's ------------------- sole discretion, the Company may retain Employee to serve as an exclusive consultant to the Company in the hermetic seal business for three (3) years (the "CONSULTING PERIOD"). During the Consulting Period, Employee will, at reasonable times and places, taking into account any other employment or activities Employee may then have, be available to consult with and advise the officers, directors and other representatives of the Company on any subjects that were within Employee's scope of duties during the Term. Employee will not be required to devote more than five (5) days per month to such consulting services, which five (5) days shall be subject to Employee's approval. Such commitment shall not be cumulative to the extent Employee does not provide services in any month. Employee will receive a monthly fee during the Consulting Period equal to one-twenty-fourth (1/24) of Employee's Base Salary in effect as of the Date of Termination if there has not been a Triggering Event. If there has been a Triggering Event, such monthly payments will cease and Employee will not receive any other separate compensation during the Consulting Period, since the aggregate of the other payments required under this Agreement and other benefits provided to Employee are intended in part to compensate Employee for the exclusive consulting services set forth in this Section. During the Consulting Period, Employee will be deemed to be an independent contractor, not an employee of the Company. During the Consulting Period, Employee shall not render services, advice or financing directly or indirectly for any business enterprise that competes directly or indirectly with the Company in the business of designing, manufacturing, servicing, distributing and selling hermetic seals, including, among others, glass to metal seals, in, among others, the automotive, defense, aviation, aerospace, petrochemical, telecommunications and process control industries in any county in the State of California, the names of all of which are deemed hereby to be specifically included herein by this reference, throughout the United States and North America, and anywhere else in the world. 2 2. COMPENSATION AND BENEFITS ------------------------- 2.1 BASE SALARY. Employee will be paid the Base Salary during the Term in ----------- accordance with the Company's policies. 2.2 BONUSES. If in any annual fiscal period during the term of this Agreement, ------- (i) the EBITDA of the Company equals at least the amount set forth on the "Downside Case" for such period on EXHIBIT B, Employee will be entitled to receive an annual bonus for such period equal to 25% of the Base Salary for such period or (ii) the EBITDA of the Company equals or exceeds the amount set forth on the "Base Case" for such period on EXHIBIT B, Employee will be entitled to receive an annual bonus equal to 35% of the Base Salary for such period; provided, that if the EBITDA of the Company exceeds the amount set forth on the "Downside Case" but does not equal or exceed the amount set forth on the "Base Case" for such period on EXHIBIT B, Employee will be entitled to receive an annual bonus for such period of between 25% and 35% of the Base Salary for such period, prorated based upon the amount that the EBITDA of the Company exceeds the amount set forth on the "Downside Case." 2.3 BENEFIT PLANS. During the Term, to the extent prior to December 23, 1996 ------------- that the Employee had participated in a particular Benefit Program (or plan substantially similar thereto), Employee will be entitled to participate in Benefit Programs substantially similar to the Benefit Programs in which Employee participates on the date hereof. 2.4 EXPENSES. The Company will pay or reimburse Employee for reasonable -------- travel, entertainment or other expenses Employee incurs on behalf of the Company in connection with the performance of Employee's duties if such expenses were of the nature that were reimbursed by the Company to employee prior to December 23, 1996. Any such expenses must be either specifically authorized by the Company or incurred in accordance with Company policies. Employee must furnish the Company with evidence relating to such expenses as the Company requires to substantiate such expenses for tax and accounting purposes. 2.5 CAR. To the extent prior to December 23, 1996 that the Company had --- provided a car to Employee, the Company will provide a car or reimburse Employee for car expenses and will provide maintenance and insurance in each case, in a manner consistent with present practice of the Company. 2.6 D&O INSURANCE. The Company will furnish Employee with the same Directors' ------------- and Officers' liability insurance furnished to other executive officers from time to time, and use reasonable efforts to name Employee as a named insured for four (4) years after the Term ends. 2.7 VACATION. Employee will be entitled to paid vacation in accordance with -------- the Company's policies applicable to other executive officers of the Company. Such vacation will be 3 taken at such time during each year as may be mutually agreed upon by the Company and Employee. 2.8 INDEMNITY. To the fullest extent permitted by applicable law, as from time --------- to time in effect, the Company will indemnify Employee and hold Employee harmless for any acts or decisions made in good faith in performing services for the Company. If Employee is a party to a definitive indemnification agreement with the Company, the foregoing sentence will not be applicable. 2.9 SECTION 162(m) OF THE CODE. Notwithstanding anything to the contrary in -------------------------- this Agreement, any payment under this Agreement that is not deductible because of Section 162(m) of the Code will not be paid until the first day that it is deductible. Any such deferred payment will bear interest at the short term federal rate determined under the Code. 3. TERMINATION ----------- 3.1 BY COMPANY. The compensation and other benefits provided to Employee under ---------- this Agreement, and the employment of Employee by the Company, can be terminated prior to the expiration of the Term only as set forth in this Section 3.1. 3.1.1 DEATH. All payments and benefits under this Agreement will ----- terminate upon Employee's death. 3.1.2 UNAVAILABILITY. Employee's employment will terminate upon the -------------- date as of which Employee is Unavailable, without further action or notice by the Company. 3.1.3 GOOD CAUSE. Employee's employment will terminate upon a ---------- determination that there is Good Cause for such termination. 3.1.4 WITHOUT CAUSE. The Board has the right to terminate Employee's ------------- employment at any time, with or without Good Cause. 3.2 BY EMPLOYEE. Employee can terminate employment under this Agreement if ----------- Employee has established Good Reason under the terms of this Agreement. 3.3 NOTICE OF TERMINATION. Any termination by the Company for Good Cause, or --------------------- by Employee for Good Reason, will be communicated by Notice of Termination to the other party hereto. A "NOTICE OF TERMINATION" will (a) indicate the specific termination provision in this Agreement relied upon, (b) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under such provisions and (c) if the Date of Termination is other than the date of receipt of such notice, specify the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by Employee 4 or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Good Cause will not waive any right of Employee or the Company hereunder or preclude Employee or the Company from asserting such fact or circumstance in enforcing Employee's or the Company's rights hereunder. 3.4 EFFECT OF TERMINATION. --------------------- 3.4.1 DEATH; UNAVAILABILITY; GOOD CAUSE; OR TERMINATION BY EMPLOYEE ------------------------------------------------------------- WITHOUT GOOD REASON. If during the Term Employee dies, becomes ------------------- Unavailable, is terminated for Good Cause, or resigns without Good Reason, the Company will pay to Employee (or Employee's estate) the sum of Employee's Base Salary and, in the case of Employee's Termination on account of Employee's death or Unavailability, Earned and Unpaid Bonuses, to which Employee was entitled through the Date of Termination and any other previously earned but unpaid compensation (excluding accrued bonuses other than, in the case of Death or Unavailability, Earned and Unpaid Bonuses) under this Agreement, in each case to the extent not previously paid (the "ACCRUED OBLIGATIONS"). 8The Accrued Obligations will be paid in a lump sum in cash within thirty (30) days after the Date of Termination. If employment is terminated due to Disability, Employee will, while Disabled, continue to participate in any insurance programs that are part of the Benefit Programs to the extent that such continued participation is possible under their terms. All accruals or vesting of benefits will terminate as of the Date of Termination. 3.4.2 WITHOUT GOOD CAUSE OR FOR GOOD REASON. If during the Term -------------------------------------- Employee's employment is terminated by the Company for any reason other than Employee's death, Unavailability or Good Cause, or by Employee for Good Reason, the Company will pay to Employee the Base Salary and any Earned and Unpaid Bonuses to which Employee would have been entitled for the remainder of the Term. Employee will also be entitled to continue to participate in any insurance programs that are part of the Benefit Programs, as though Employee remained an employee, for such period. Such amounts will be paid or provided to Employee at such times and in such manner as they would have been paid or provided if no such termination had occurred. If Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility. 3.4.3 WAIVER. If Employee elects to receive the payments, and accepts ------ the payments, set forth in this Section 3.4, Employee agrees that such payments will constitute Employee's sole and exclusive right and entitlement in connection with Employee's employment by the Company and the termination of such employment and any and all matters related to or arising in connection with such 5 employment. Employee's acceptance of such amounts will release the Company and its affiliated entities (including all directors, officers, employees and agents) from any claims that Employee might otherwise have or assert in connection with such matters. In addition, the Company is entitled to condition such payment on Employee's execution of a normal release. If Employee desires to pursue or enforce any such rights, entitlements or remedies that would otherwise be waived and released, then Employee must refuse the payments provided for in Section 3.4 in their entirety. If Employee accepts such payments, Employee will be deemed to have agreed to the foregoing exclusivity of rights and waiver of claims. 3.4.4 STOCKHOLDERS AGREEMENT. The Company and the Employee shall be ----------------------- subject to the "put" and "call" agreements set forth in the Stockholders Agreement. 3.4.5 MITIGATION. Employee shall have no obligation to seek or accept ---------- employment elsewhere after any termination under this Agreement pursuant to Section 3.4.2. Additionally, if Employee accepts employment elsewhere after any termination under this Agreement pursuant to Section 3.4.2, the Company will have no right to offset any amounts paid to Employee from such other employment during the remaining term hereof, including any benefits to which Employee is entitled under the other company's benefit plans and programs. 3.4.6 EFFECT ON BENEFIT PROGRAMS. The termination of this Agreement -------------------------- will not affect any vested rights that Employee may have at the Date of Termination under any Benefit Program. 3.4.7 COOPERATION. Following termination of employment with the ----------- Company for any reason, Employee will cooperate with the Company, as reasonably requested by the Company, to effect a transition of Employee's responsibilities and to ensure that the Company is aware of all matters being handled by Employee. Employee will, upon reasonable notice, furnish such information and assistance to the Company as may reasonably be required by the Company in connection with any legal or quasi-legal, proceeding, including any external or internal investigation, involving the Company or any of its affiliates or in which any of them is, or may become, a party. 3.5 BEST PAYMENT PROVISION. If the vesting of any option or the Contingent ---------------------- Bonus upon a Change of Control alone or together with all other payments and the value of any benefit received or to be received by Employee in connection with a Change of Control or the termination of the Employee's employment (whether pursuant to this Agreement or any other Plan, arrangement or agreement with the Company, any entity whose actions result in a Change of Control or any entity affiliated with the Company or such entity) would result in all or a portion of such payment to be subject to excise tax under Section 4999 of the Internal Revenue Code, then Employee's payment under this Agreement and the Contingent Bonus Plan and Award Agreement will be either (a) the full payment 6 provided that the shareholder approval requirements described in Section 280G(b)(5)(A)(ii) and (b)(5)(B) and the Treasury Regulations thereunder are met with respect to such payment or (b), if such shareholder approval requirement is not met, such lesser amount that would result in no portion of the payment being subject to excise tax under Section 4999 of the Internal Revenue Code. All determinations required to be made under this Section will be made by Coopers & Lybrand or any other nationally recognized accounting firm that is the Company's outside auditor at the time of such determination, which firm must be reasonably acceptable to Employee (the "ACCOUNTING FIRM"). The Company will cause the Accounting firm to provide detailed supporting calculations of its determinations to the Company and Employee. Notice must be given to the Accounting Firm within fifteen (15) business days after an event entitling Employee to a payment under this Agreement. All fees and expenses of the Accounting Firm will be borne solely by the Company. The Accounting Firm's determinations must be made with substantial authority (within the meaning of Section 6662 of the Code). 4. OTHER AGREEMENTS ---------------- 4.1 CONFIDENTIAL INFORMATION; etc. ------------------------------- 4.1.1 CONFIDENTIAL INFORMATION. Employee will hold all Confidential ------------------------ Information in a fiduciary capacity for the benefit of the Company. After termination of Employee's employment, Employee will not, without the prior written consent of the Company or as may otherwise be required by court order, communicate or divulge any such Confidential Information to anyone other than the Company and those designated by it. 4.1.2 CLIENTS; EMPLOYEES. During the Term and Consulting Period, and ------------------ afterwards for a period of two (2) years, Employee will not (a) solicit customers, suppliers or clients of the Company to reduce or discontinue their business with the Company or to engage in business with any competing entity or (b) attempt to induce any employee of the Company to leave such employment. 4.1.3 PUBLICATIONS. If Employee desires to publish the results of ------------ Employee's work for or experiences with the Company through literature, interviews or speeches, Employee will submit requests for such interviews or such literature or speeches to the Board at least thirty (30) days before any anticipated dissemination of such information for a determination of whether such disclosure is in the best interests of the Company. Employee will not publish, disclose or otherwise disseminate such information without the prior written approval of the Company. 4.1.4 DOCUMENTS. On the Date of Termination, Employee shall deliver to --------- the Company and not keep or deliver to anyone else any and all notes, notebooks, memoranda, documents, regardless of whether such materials are in hard copy form or on computer disks, and, in general, any and all material, relating to the 7 Company's business. Employee shall not retain any such materials without prior written approval by the Company. 4.2 WORK PRODUCT. ------------ 4.2.1 OWNERSHIP OF WORK PRODUCT. If Employee conceives of, discovers, ------------------------- invents or creates inventions, improvements, new contributions, literary property, material, ideas and discoveries, whether patentable or copyrightable or not (all of the foregoing being collectively referred to herein as "WORK PRODUCT"), or receives information about business opportunities for the Company, unless Company otherwise agrees in writing, all of the foregoing will be owned by and belong exclusively to Company and that Employee will have no personal interest therein, if they are either related in any manner to the business (commercial or experimental) of Company, or are, in the case of Work Product, conceived or made on Company's time or with the use of Company's facilities or materials, or, in the case of business opportunities, are presented to Employee for the possible interest or participation of Company. Employee will further, unless Company otherwise agrees in writing, (a) promptly disclose any such Work Product and business opportunities to Company; (b) assign to Company, upon request and without additional compensation, the entire rights to such Work Product and business opportunities; (c) sign all papers necessary to carry out the foregoing; and (d) give testimony in support of Employee's inventorship or creation in any appropriate case. Employee will not assert any rights to any Work Product or business opportunity as having been made or acquired by Employee prior to the date of this Agreement except for Work Product or business opportunities, if any, disclosed to and acknowledged by Company in writing prior to the date hereof. 4.2.2 NONASSIGNABLE SECTION 2870 INVENTIONS. In the event that ------------------------------------- Employee's employment is subject to the California Labor Code, except for Employee's obligations under Section 4.2.3 below, this Agreement does not apply to Work Product which qualifies fully as a nonassignable Work Product under Section 2870 of the California Labor Code ("Section 2870"). Employee acknowledges that Employee has reviewed the Employee-Owned Invention Notification attached hereto as EXHIBIT C and agrees that Employee's signature on that Notification acknowledges his or her receipt thereof. 4.2.3 EMPLOYEE DISCLOSURE OBLIGATION. Employee shall, during the ------------------------------ employment and for six months thereafter, promptly disclose to the Company fully and in writing all Work Product made, conceived or first reduced to practice by Employee, either alone or jointly with others, including, if Section 2870 applies to Employee, any Work Product that Employee believes fully qualifies for protection under Section 2870, together with all evidence, in writing, necessary to substantiate that belief. In addition, Employee will disclose to the Company all patent applications filed by Employee or on Employee's behalf within a year after 8 termination of the employment. The Company will maintain such information in confidence and will not use for any purpose or disclose to third parties any such information without Employee's consent except to the extent necessary to exploit and enforce any proprietary or intellectual property rights the Company may have in such disclosed information. 4.3 INSURANCE. The Company will have the right to take out life, health, --------- accident, "Key-man" or other insurance covering Employee, in the name of the Company and at the Company's expense in any amount deemed appropriate by the Company. Employee will assist the Company in obtaining such insurance, including, but not limited to, submitting to any reasonably required medical examination. The Company will be the owner and beneficiary of any and all policies for such insurance. 4.4 ASSISTANCE IN LITIGATION. Employee will render assistance, advice and ------------------------ counsel to the Company at its request regarding any matter, dispute or controversy with which the Company may become involved and of which Employee has or may have reason to have knowledge, information or expertise. Such services will be without additional compensation if Employee is then employed by the Company and for reasonable compensation and subject to Employee's reasonable availability if Employee is not. In any event, the Company will pay all of Employee's reasonable out-of-pocket expenses in connection therewith. 4.5 WITHHOLDING TAXES. To the extent required by the law in effect at the time ----------------- any amounts under this Agreement are paid, the Company will withhold from such payments the taxes and other amounts required to be withheld by applicable law. 4.6 MEDICAL EXAMINATION. Employee will submit to and cooperate in, from time ------------------- to time, such examinations as the Company reasonably requests to determine whether Employee is or continues to be able to perform the essential functions of his/her position. 5. DISPUTE RESOLUTION ------------------ 5.1 DISPUTE RESOLUTION. Except as necessary for the Company to specifically ------------------ enforce its rights under Sections 1.4, 1.5, 4.1 and 4.2 of the Agreement or to obtain injunctive relief, the parties agree that any disputes that may arise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Employee's employment with the Company, the termination of that employment or any other dispute by and between the parties or their successors or assigns, will be submitted to binding arbitration in Los Angeles, California according to the Employment Dispute Resolution rules and procedures of the American Arbitration Association and California Code of Civil Procedure Section 1283.05. Each party will pay half of any costs associated with the arbitration. This arbitration obligation extends to any and all claims that may arise by and between the parties or their successors, assigns or affiliates, and expressly extends to, without limitation, claims or causes of action for wrongful 9 termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under the California or other State Constitutions, the United States Constitution, and applicable state and federal fair employment laws, federal equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, and the Age Discrimination in Employment Act of 1967. 5.2 RIGHTS AND REMEDIES UPON BREACH. If Employee breaches, or threatens to ------------------------------- commit a breach of, any of the provisions of Sections 1.4, 1.5, 4.1 and 4.2 of the Agreement (the "Restrictive Covenants"), the Company and its subsidiaries, affiliates, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, successors or assigns at law or in equity: 5.2.1 SPECIFIC PERFORMANCE. The right and remedy to have the -------------------- Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company or its subsidiaries, affiliates, successors or assigns and that money damages would not provide an adequate remedy to the Company or its subsidiaries, affiliates, successors or assigns; 5.2.2 ACCOUNTING. The right and remedy to require Employee to account ---------- for and pay over to the Company or its subsidiaries, affiliates, successors or assigns, as the case may be, all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any transaction or activity constituting a breach of the Restrictive Covenants; 5.2.3 SEVERABILITY OF COVENANTS. Employee acknowledges and agrees that ------------------------- the Restrictive Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions; 5.2.4 BLUE-PENCILING. If any court determines that any of the -------------- Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable; 10 5.2.5 ENFORCEABILITY IN JURISDICTIONS. Employee intends to and hereby ------------------------------- confers jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Employee that such determination not bar or in any way affect the Company's or its subsidiaries', affiliates', successors' or assigns' right to the relief provided above in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 5.3 PREVAILING PARTY. The prevailing party in any action relating to this ---------------- Agreement will be entitled to recover, in addition to other appropriate relief, reasonable legal fees, costs and expenses incurred in such action. 5.4 SUCCESSOR. The Company will require any successor (whether direct or --------- indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 6. GENERAL PROVISIONS ------------------ 6.1 ASSIGNMENT. This Agreement is a personal contract, and the rights, ---------- interests and obligations of Employee under this Agreement may not be sold, transferred, assigned, pledged or hypothecated by Employee, except that this Agreement may be assigned by the Company to any corporation or other business entity that succeeds to all or substantially all of the business of the Company or any division or subunit thereof through merger, consolidation, corporate reorganization or by acquisition of all or substantially all of the assets of the Company and that assumes the Company's obligations under this Agreement. The terms and conditions of this Agreement will inure to the benefit of and be binding upon any successor to the business of the Company and Employee's heirs and legal representatives. 6.2 AMENDMENTS; WAIVERS. Amendments, waivers, demands, consents and approvals ------------------- under this Agreement must be in writing and designated as such. No failure or delay in exercising any right will be deemed a waiver of such right. 6.3 INTEGRATION. This Agreement is the entire agreement between the parties ----------- pertaining to its subject matter, and supersedes all prior agreements and understandings of the parties in connection with such subject matter. 11 6.4 INTERPRETATION; GOVERNING LAW. This Agreement is to be construed as a ----------------------------- whole and in accordance with its fair meaning. This Agreement is to be interpreted in accordance with the laws of the State of California. 6.5 HEADINGS. Headings of Sections and subsections are for convenience only -------- and are not a part of this Agreement. 6.6 COUNTERPARTS. This Agreement may be executed in one or more counterparts, ------------- all of which constitute one agreement. 6.7 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to the ---------------------- benefit of each party and such party's respective heirs, personal representatives, successors and assigns. Nothing in this Agreement, express or implied, is intended to confer any rights or remedies upon any other person. 6.8 EXPENSES. Each party will pay its own expenses in the negotiation and -------- preparation of this Agreement. 6.9 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party acknowledges that it ------------------------------------------ has had the opportunity to be represented by counsel in connection with this Agreement. Any rule of law, including, but not limited to, Section 1654 of the California Civil Code, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it, has no application and is expressly waived. 6.10 TIME IS OF THE ESSENCE. Time is of the essence in the performance of each ---------------------- and every term, provision and covenant in this Agreement. 6.11 NOTICES. Any notice to be given hereunder must be in writing and delivered ------- to the following addresses (or to another address as either shall designate in writing). Such notice will be effective (a) if given by telecopy or if confirmed by returned telecopy, (b) one Business Day after delivery through a generally recognized and reputable overnight courier or messenger for next day deliver, (c) if given by mail or any other means, when actually delivered to the address specified. IF TO THE COMPANY: IF TO EMPLOYEE: ----------------- -------------- HCC Industries Inc, At Employee's most recent address on the 4232 Temple City Boulevard books and records of the Company. Rosemead, California 91770 Attention: Board of Directors 12 WITH A COPY TO: -------------- Windward Capital Partners, L.P. Eleven Madison Avenue 26th Floor New York, New York 10010 Attention: Thomas J. Sikorski The parties have signed this Agreement effective as of the date on page one. HCC INDUSTRIES INC. By: --------------------------- Its: -------------------------- EMPLOYEE ------------------------------ Andrew Goldfarb 13 EXHIBIT A DEFINED TERMS "EARNED AND UNPAID BONUSES" means with respect to any date, bonuses which have ------------------------- been earned by Employee as of the end of the Company's fiscal year preceding such date but not paid to Employee. "AGREEMENT" means this Employment Agreement, as amended from time to time. --------- "AWARD AGREEMENT" means the Award Agreement, dated February __, 1997 between --------------- Employee and the Company pursuant to the Contingent Bonus Plan. "BASE SALARY" means the annual amount of $300,000. Commencing on the first ----------- anniversary of this Agreement and annually thereafter each year during the Term, Base Salary payments will be adjusted to reflect the increase, if any, in the cost of living during the previous year by adding to the Base Salary for the previous twelve-month period the amount obtained by multiplying such previous Base Salary by the percentage by which the level of the Consumer Price Index for the Long Beach - Los Angeles Area, and reported as of the last day of that twelve-month period by the Bureau of Labor Statistics of the United States Department of Labor, has increased over its level as of the prior anniversary of this Agreement (or with respect to the second year, the date of this Agreement). If the information is not available on the anniversary of this Agreement, the Base Salary will be adjusted retroactively immediately after such information becomes available, and Employee will be paid promptly thereafter a lump sum equal to the amounts Employee would have received, less actual amounts received, had such adjustments been made earlier. In no event will Base Salary be reduced. "BENEFIT PROGRAMS" means programs such as group health, dental, life and ---------------- disability, profit sharing, pension and similar programs (but excluding bonus plans) made generally available to the senior executives of the Company. "BOARD" means the Company's Board of Directors as composed at the time, not ----- including Employee. "BUSINESS DAY" means any day except a Saturday, Sunday or other day national ------------ banks in the State of California are authorized or required by law to close. "CHANGE OF CONTROL" has the meaning set forth in the Contingent Bonus Plan. ----------------- "CODE" means the Internal Revenue Code of 1986, as amended from time to time. ---- "COMMON STOCK" means the Company's common stock, $0.10 par value. ------------ Exhibit A-1 "COMPANY" means HCC Industries Inc., a Delaware corporation, together with its ------- subsidiaries. "CONFIDENTIAL INFORMATION" means information not known by the trade generally or ------------------------ not reasonably available to a knowledgeable person in the trade, even though such information may have been disclosed to one or more third parties pursuant to consulting agreements, joint research agreements, or other agreements entered into by the Company and includes, without limitation, trade secrets, designs, plans, formulas, customer lists, lists of suppliers, and all other confidential and proprietary information. "CONTINGENT BONUS PLAN" means the Contingent Bonus Plan, dated February 14, 1997 --------------------- between the Company and the Participants, as that term is defined therein, Employee being one of the Participants. "DATE OF TERMINATION" means: ------------------- (a) the end of the Term, if Employee's employment has not terminated before then; (b) if Employee's employment is terminated by the Company for Good Cause, or by Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (c) if Employee's employment is terminated by the Company other than for Good Cause or Unavailability, the date on which the Company notifies Employee of such termination; and (d) if Employee's employment is terminated by reason of death or Unavailability, the date of death of Employee or the effective date, of the Unavailability, as the case may be. "DISABILITY" means the Employee's inability to substantially render to the ---------- Company the services required under this Agreement for more than 60 days out of any consecutive 120 day period because of mental or physical illness or incapacity, as determined in good faith by the Board. "EBITDA" means the combined earnings before interest, federal and state income ------ taxes, and depreciation and amortization of the Company and its subsidiaries determined in good faith by the Company in accordance with generally accepted accounting principles. "GOOD CAUSE" means a finding by the Board in good faith that Employee has ---------- (a) been engaged in an act or acts of dishonesty that were intended to and did result directly or indirectly in more gain or personal enrichment to Employee at the expense of the Company in excess of $5,000; (b) failed to substantially perform Employee's duties hereunder (other than failure resulting from Employee's Unavailability due to Disability) persisting for a Exhibit A-2 reasonable period following the delivery to Employee of written notice specifying the details of any alleged failure to perform, which failure has resulted in demonstrable and material injury and damage to the Company; (c) violated or failed to comply in any material respect with the Company's published rules, regulations or policies, as in effect from time to time; (d) breached this Agreement in any material respect; (e) been convicted of a felony offense or a misdemeanor offense involving fraud, theft or dishonesty at any time, which conviction Employee failed to disclose to the Company; or (f) been incarcerated for more than 10 days. An event specified in (b), (c) or (d) above will not constitute "GOOD CAUSE" until the Board provides Employee with written notice of such event setting forth in reasonable detail the specifics of such event and such event has not been cured to the reasonable satisfaction of the Board, if such act or event can be cured, within thirty days of such notice (except upon the subsequent occurrence of a substantially similar event, in which case such second event will constitute "Good Cause" without any notice or cure period). "GOOD REASON" means, other than an event also constituting Good Cause, the ----------- Company's material breach of this Agreement. "INCLUDING" or "INCLUDES," when following any general provision, sentence, --------- clause, statement, term or matter, will be deemed to be followed by, but not limited to," and ", but is not limited to," respectively. "STOCKHOLDERS AGREEMENT" means the Stockholders Agreement, dated February 14, ---------------------- 1997 among the Company, Windward, Windward/Park, Windward/Merban, Windward/Merchant, and the Management Stockholders as defined therein. "TERM" means the period from the date hereof through the earlier of (a) April 1, ---- 2000 or (b) the date Employee dies, becomes Unavailability, is terminated for any reason, or voluntarily terminates employment. "TRIGGERING EVENT" means any event which causes the acceleration of Contingent ---------------- Bonuses under the Company's Contingent Bonus Plan dated the date hereof. "UNAVAILABILITY" means Employee being unable to fully perform Employee's duties -------------- by reason of illness, Disability or other incapacity, or by reason of any statute, law, ordinance, regulation, order, judgment or decree, except for an instance that would constitute Good Cause. Exhibit A-3 EXHIBIT B --------- BONUSES--BASE CASE & DOWNSIDE CASE ---------------------------------- Base Case--Employee Entitled to Additional Bonus Equal to 35% of Base Salary - ---------------------------------------------------------------------------- f/y/e 1998 $21,772,000 f/y/e 1999 $28,469,000 Downside Case--Employee Entitled to Additional Bonus Equal to 25% of Base Salary - ------------------------------------------------------------------------------ f/y/e 1998 $17,873,000 f/y/e 1999 $22,360,000 Exhibit B-1 EXHIBIT C --------- EMPLOYEE-OWNED INVENTION NOTIFICATION ------------------------------------- This Employee-Owned Invention Notification ("Notification") is to inform Employee in accordance with Section 2872 of the California Labor Code that the Agreement between Employee and the Company does not require Employee to assign or offer to assign to the Company any invention that Employee developed or develops entirely on his or her own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either: 1. Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company; or 2. Result from any work performed by Employee for the Company. To the extent a provision in the Agreement purports to require Employee to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of the State of California and is unenforceable. This Notification does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States. Employee acknowledges receipt of a copy of this Notification: By: --------------------------- (Printed Name of Employee) Date: ------------------------- Witnessed By: - --------------------------------- (Printed Name of Representative) Dated: --------------------------- Exhibit C-1 EX-10.8 15 EMPLOYMENT AGREEMENT--CHRISTOPHER BATEMAN EXHIBIT 10.8 EMPLOYMENT AGREEMENT TABLE OF CONTENTS -----------------
Page No. -------- 1. Employment . . . . . . . . . . . . . . . . . . . . 1 1.1 Term.. . . . . . . . . . . . . . . . . . . . 1 1.2 Title; Reporting; Policies . . . . . . . . . 1 1.2.1 Title; Duties . . . . . . . . . . . . 1 1.2.2 Reporting . . . . . . . . . . . . . . 1 1.2.3 Policies . . . . . . . . . . . . . . 1 1.3 Place; Travel. . . . . . . . . . . . . . . . 1 1.3.1 Place of Employment . . . . . . . . . 1 1.3.2 Travel . . . . . . . . . . . . . . . 1 1.4 Exclusive; Outside Activities. . . . . . . . 2 1.5 Consulting Services. . . . . . . . . . . . . 2 2. Compensation and Benefits. . . . . . . . . . . . . 3 2.1 Base Salary. . . . . . . . . . . . . . . . . 3 2.2 Bonuses. . . . . . . . . . . . . . . . . . . 3 2.3 Benefit Plans. . . . . . . . . . . . . . . . 3 2.4 Expenses.. . . . . . . . . . . . . . . . . . 3 2.5 Car. . . . . . . . . . . . . . . . . . . . . 3 2.6 D&O Insurance. . . . . . . . . . . . . . . . 3 2.7 Vacation . . . . . . . . . . . . . . . . . . 3 2.8 Indemnity. . . . . . . . . . . . . . . . . . 4 2.9 Section 162(m) of the Code . . . . . . . . . 4 3. Termination. . . . . . . . . . . . . . . . . . . . 4 3.1 By Company . . . . . . . . . . . . . . . . . 4 3.1.1 Death. . . . . . . . . . . . . . . . 4 3.1.2 Unavailability . . . . . . . . . . . 4 3.1.3 Good Cause . . . . . . . . . . . . . 4 3.1.4 Without Cause. . . . . . . . . . . . 4 3.2 By Employee. . . . . . . . . . . . . . . . . 4 3.3 Notice of Termination. . . . . . . . . . . . 4 3.4 Effect of Termination. . . . . . . . . . . . 5 3.4.1 Death; Unavailability; Good Cause; or Termination by Employee Without Good Reason. . . . . . . . . . . . . 5 3.4.2 Without Good Cause or for Good Reason. . . . . . . . . . . . . 5 3.4.3 Waiver . . . . . . . . . . . . . . . 5 3.4.5 Mitigation . . . . . . . . . . . . . 6 3.4.6 Effect on Benefit Programs . . . . . 6 3.4.7 Cooperation. . . . . . . . . . . . . 6 3.5 Best Payment Provision . . . . . . . . . . . 6
(i) TABLE OF CONTENTS -----------------
Page No. -------- 4. Other Agreements . . . . . . . . . . . . . . . . . 7 4.1 Confidential Information; etc. . . . . . . . 7 4.1.1 Confidential Information . . . . . . 7 4.1.2 Clients; Employees . . . . . . . . . 7 4.1.3 Publications . . . . . . . . . . . . 7 4.1.4 Documents. . . . . . . . . . . . . . 7 4.2 Work Product . . . . . . . . . . . . . . . . 8 4.2.1 Ownership of Work Product. . . . . . 8 4.2.2 Nonassignable Section 2870 Inventions . . . . . . . . . . . . 8 4.2.3 Employee Disclosure Obligation . . . 8 4.3 Insurance. . . . . . . . . . . . . . . . . . 9 4.4 Assistance in Litigation . . . . . . . . . . 9 4.5 Withholding Taxes. . . . . . . . . . . . . . 9 4.6 Medical Examination. . . . . . . . . . . . . 9 5. Dispute Resolution . . . . . . . . . . . . . . . . 9 5.1 Dispute Resolution . . . . . . . . . . . . . 9 5.2 Rights and Remedies Upon Breach. . . . . . . 10 5.2.1 SPECIFIC PERFORMANCE . . . . . . . . 10 5.2.2 ACCOUNTING . . . . . . . . . . . . . 10 5.2.3 SEVERABILITY OF COVENANTS . . . . . . 10 5.2.4 BLUE-PENCILING . . . . . . . . . . . 10 5.2.5 ENFORCEABILITY IN JURISDICTIONS . . . 11 5.3 Prevailing Party . . . . . . . . . . . . . . 11 5.4 Successor. . . . . . . . . . . . . . . . . . 11 6. General Provisions . . . . . . . . . . . . . . . . 11 6.1 Assignment . . . . . . . . . . . . . . . . . 11 6.2 Amendments; Waivers. . . . . . . . . . . . . 11 6.3 Integration. . . . . . . . . . . . . . . . . 11 6.4 Interpretation; Governing Law. . . . . . . . 12 6.5 Headings . . . . . . . . . . . . . . . . . . 12 6.6 Counterparts . . . . . . . . . . . . . . . . 12 6.7 Successors and Assigns . . . . . . . . . . . 12 6.8 Expenses . . . . . . . . . . . . . . . . . . 12 6.9 Representation by Counsel; Interpretation. . 12 6.10 Time is of the Essence . . . . . . . . . . . 12 6.11 Notices. . . . . . . . . . . . . . . . . . . 12
(ii) TABLE OF CONTENTS -----------------
Page No. -------- Exhibit A - Defined Terms A-1 Exhibit B - Bonuses--Base Case & Downside Case B-1 Exhibit C - Employee-Owned Invention Notification C-1
(iii) EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is entered into as of February 14, 1997 by and between HCC Industries Inc., a Delaware corporation (the "COMPANY") and Christopher H. Bateman ("EMPLOYEE"). The parties agree as follows. The capitalized terms on EXHIBIT A have the meanings respectively assigned to them, --------- which apply equally to the singular and plural forms of the terms. 1. EMPLOYMENT ---------- 1.1 TERM. The Company agrees to employ Employee for the Term, and Employee ---- accepts such employment. 1.2 TITLE; REPORTING; POLICIES. -------------------------- 1.2.1 TITLE; DUTIES. Employee will serve as Vice President and Chief ------------- Financial Officer of the Company. Employee will faithfully perform the duties of Employee's office to the best of Employee's ability. Employee will have such duties and responsibilities as are generally consistent with such position in a company of comparable present and projected size. Employee will also serve without additional compensation in such executive capacities for one or more direct or indirect subsidiaries of the Company as the Board from time to time requests. Employee will also, subject to Employee's election as such, serve as a member of the Board, as well as a member of any committee of the Board to which Employee may be elected or appointed. 1.2.2 REPORTING. Employee will report directly to the President of the --------- Company and will be subject to the direction of the Board and to such limits on Employee's authority as the Board from time to time imposes. 1.2.3 POLICIES. Employee will be subject to and comply with the -------- policies, standards and procedures generally applicable to senior executives of the Company from time to time. 1.3 PLACE; TRAVEL. ------------- 1.3.1 PLACE OF EMPLOYMENT. Employee will be based at the Company's ------------------- principal executive offices in Los Angeles, California. 1.3.2 TRAVEL. Employee will be expected to engage in frequent travel as ------ is required for the proper discharge of Employee's duties. 1 1.4 EXCLUSIVE; OUTSIDE ACTIVITIES. Employee will devote full and exclusive ----------------------------- business time to the Company. The foregoing will not prohibit Employee from: (a) passive ownership of real or personal property; (b) owning less than 5% of any class of securities of a corporation that is publicly held; (c) owning any class of securities of or being a partner in any other corporation or business not competing directly or indirectly with the Company or providing goods or services to the Company if, in each case, (x) such interests are held for investment, (y) Employee does not become involved in active management of an operating business, and (z) such ownership or management does not materially interfere with the performance of Employee's duties. Employee may also hold directorships or similar positions with nonprofit, charitable, community or other similar organizations, so long as such activities do not materially interfere with the performance of Employee's duties. Any other directorships or similar positions must be approved by the Board, which approval will not be unreasonably withheld. 1.5 CONSULTING SERVICES. Following any Date of Termination, in the Company's ------------------- sole discretion, the Company may retain Employee to serve as an exclusive consultant to the Company in the hermetic seal business for two (2) years (the "CONSULTING PERIOD"). During the Consulting Period, Employee will, at reasonable times and places, taking into account any other employment or activities Employee may then have, be available to consult with and advise the officers, directors and other representatives of the Company on any subjects that were within Employee's scope of duties during the Term. Employee will not be required to devote more than five (5) days per month to such consulting services, which five (5) days shall be subject to Employee's approval. Such commitment shall not be cumulative to the extent Employee does not provide services in any month. Employee will receive a monthly fee during the Consulting Period equal to one-twenty-fourth (1/24) of Employee's Base Salary in effect as of the Date of Termination if there has not been a Triggering Event. If there has been a Triggering Event, such monthly payments will cease and Employee will not receive any other separate compensation during the Consulting Period, since the aggregate of the other payments required under this Agreement and other benefits provided to Employee are intended in part to compensate Employee for the exclusive consulting services set forth in this Section. During the Consulting Period, Employee will be deemed to be an independent contractor, not an employee of the Company. During the Consulting Period, Employee shall not render services, advice or financing directly or indirectly for any business enterprise that competes directly or indirectly with the Company in the business of designing, manufacturing, servicing, distributing and selling hermetic seals, including, among others, glass to metal seals, in, among others, the automotive, defense, aviation, aerospace, petrochemical, telecommunications and process control industries in any county in the State of California, the names of all of which are deemed hereby to be specifically included herein by this reference, throughout the United States and North America, and anywhere else in the world. 2 2. COMPENSATION AND BENEFITS ------------------------- 2.1 BASE SALARY. Employee will be paid the Base Salary during the Term in ----------- accordance with the Company's policies. 2.2 BONUSES. If in any annual fiscal period during the term of this Agreement, ------- (i) the EBITDA of the Company equals at least the amount set forth on the "Downside Case" for such period on EXHIBIT B, Employee will be entitled to --------- receive an annual bonus for such period equal to 25% of the Base Salary for such period or (ii) the EBITDA of the Company equals or exceeds the amount set forth on the "Base Case" for such period on EXHIBIT B, Employee will be --------- entitled to receive an annual bonus equal to 35% of the Base Salary for such period; provided, that if the EBITDA of the Company exceeds the amount set forth on the "Downside Case" but does not equal or exceed the amount set forth on the "Base Case" for such period on EXHIBIT B, Employee will be --------- entitled to receive an annual bonus for such period of between 25% and 35% of the Base Salary for such period, prorated based upon the amount that the EBITDA of the Company exceeds the amount set forth on the "Downside Case." 2.3 BENEFIT PLANS. During the Term, to the extent prior to December 23, 1996 ------------- that the Employee had participated in a particular Benefit Program (or plan substantially similar thereto), Employee will be entitled to participate in Benefit Programs substantially similar to the Benefit Programs in which Employee participates on the date hereof. 2.4 EXPENSES. The Company will pay or reimburse Employee for reasonable travel, -------- entertainment or other expenses Employee incurs on behalf of the Company in connection with the performance of Employee's duties if such expenses were of the nature that were reimbursed by the Company to employee prior to December 23, 1996. Any such expenses must be either specifically authorized by the Company or incurred in accordance with Company policies. Employee must furnish the Company with evidence relating to such expenses as the Company requires to substantiate such expenses for tax and accounting purposes. 2.5 CAR. To the extent prior to December 23, 1996 that the Company had provided --- a car to Employee, the Company will provide a car or reimburse Employee for car expenses and will provide maintenance and insurance in each case, in a manner consistent with present practice of the Company. 2.6 D&O INSURANCE. The Company will furnish Employee with the same Directors' ------------- and Officers' liability insurance furnished to other executive officers from time to time, and use reasonable efforts to name Employee as a named insured for four (4) years after the Term ends. 2.7 VACATION. Employee will be entitled to paid vacation in accordance with the -------- Company's policies applicable to other executive officers of the Company. Such vacation will be 3 taken at such time during each year as may be mutually agreed upon by the Company and Employee. 2.8 INDEMNITY. To the fullest extent permitted by applicable law, as from time --------- to time in effect, the Company will indemnify Employee and hold Employee harmless for any acts or decisions made in good faith in performing services for the Company. If Employee is a party to a definitive indemnification agreement with the Company, the foregoing sentence will not be applicable. 2.9 SECTION 162(m) OF THE CODE. Notwithstanding anything to the contrary in -------------------------- this Agreement, any payment under this Agreement that is not deductible because of Section 162(m) of the Code will not be paid until the first day that it is deductible. Any such deferred payment will bear interest at the short term federal rate determined under the Code. 3. TERMINATION ----------- 3.1 BY COMPANY. The compensation and other benefits provided to Employee under ---------- this Agreement, and the employment of Employee by the Company, can be terminated prior to the expiration of the Term only as set forth in this Section 3.1. 3.1.1 DEATH. All payments and benefits under this Agreement will ----- terminate upon Employee's death. 3.1.2 UNAVAILABILITY. Employee's employment will terminate upon the -------------- date as of which Employee is Unavailable, without further action or notice by the Company. 3.1.3 GOOD CAUSE. Employee's employment will terminate upon a ---------- determination that there is Good Cause for such termination. 3.1.4 WITHOUT CAUSE. The Board has the right to terminate Employee's ------------- employment at any time, with or without Good Cause. 3.2 BY EMPLOYEE. Employee can terminate employment under this Agreement if ----------- Employee has established Good Reason under the terms of this Agreement. 3.3 NOTICE OF TERMINATION. Any termination by the Company for Good Cause, or by --------------------- Employee for Good Reason, will be communicated by Notice of Termination to the other party hereto. A "NOTICE OF TERMINATION" will (a) indicate the specific termination provision in this Agreement relied upon, (b) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under such provisions and (c) if the Date of Termination is other than the date of receipt of such notice, specify the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by Employee 4 or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Good Cause will not waive any right of Employee or the Company hereunder or preclude Employee or the Company from asserting such fact or circumstance in enforcing Employee's or the Company's rights hereunder. 3.4 EFFECT OF TERMINATION. --------------------- 3.4.1 DEATH; UNAVAILABILITY; GOOD CAUSE; OR TERMINATION BY EMPLOYEE ------------------------------------------------------------- WITHOUT GOOD REASON. If during the Term Employee dies, becomes ------------------- Unavailable, is terminated for Good Cause, or resigns without Good Reason, the Company will pay to Employee (or Employee's estate) the sum of Employee's Base Salary and, in the case of Employee's Termination on account of Employee's death or Unavailability, Earned and Unpaid Bonuses, to which Employee was entitled through the Date of Termination and any other previously earned but unpaid compensation (excluding accrued bonuses other than, in the case of Death or Unavailability, Earned and Unpaid Bonuses) under this Agreement, in each case to the extent not previously paid (the "ACCRUED OBLIGATIONS"). The Accrued Obligations will be paid in a lump sum in cash within thirty (30) days after the Date of Termination. If employment is terminated due to Disability, Employee will, while Disabled, continue to participate in any insurance programs that are part of the Benefit Programs to the extent that such continued participation is possible under their terms. All accruals or vesting of benefits will terminate as of the Date of Termination. 3.4.2 WITHOUT GOOD CAUSE OR FOR GOOD REASON. If during the Term ------------------------------------- Employee's employment is terminated by the Company for any reason other than Employee's death, Unavailability or Good Cause, or by Employee for Good Reason, the Company will pay to Employee the Base Salary and any Earned and Unpaid Bonuses to which Employee would have been entitled for the remainder of the Term. Employee will also be entitled to continue to participate in any insurance programs that are part of the Benefit Programs, as though Employee remained an employee, for such period. Such amounts will be paid or provided to Employee at such times and in such manner as they would have been paid or provided if no such termination had occurred. If Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility. 3.4.3 WAIVER. If Employee elects to receive the payments, and accepts ------ the payments, set forth in this Section 3.4, Employee agrees that such payments will constitute Employee's sole and exclusive right and entitlement in connection with Employee's employment by the Company and the termination of such employment and any and all matters related to or arising in connection with such 5 employment. Employee's acceptance of such amounts will release the Company and its affiliated entities (including all directors, officers, employees and agents) from any claims that Employee might otherwise have or assert in connection with such matters. In addition, the Company is entitled to condition such payment on Employee's execution of a normal release. If Employee desires to pursue or enforce any such rights, entitlements or remedies that would otherwise be waived and released, then Employee must refuse the payments provided for in Section 3.4 in their entirety. If Employee accepts such payments, Employee will be deemed to have agreed to the foregoing exclusivity of rights and waiver of claims. 3.4.4 STOCKHOLDERS AGREEMENT. The Company and the Employee shall be ---------------------- subject to the "put" and "call" agreements set forth in the Stockholders Agreement. 3.4.5 MITIGATION. Employee shall have no obligation to seek or accept ---------- employment elsewhere after any termination under this Agreement pursuant to Section 3.4.2. Additionally, if Employee accepts employment elsewhere after any termination under this Agreement pursuant to Section 3.4.2, the Company will have no right to offset any amounts paid to Employee from such other employment during the remaining term hereof, including any benefits to which Employee is entitled under the other company's benefit plans and programs. 3.4.6 EFFECT ON BENEFIT PROGRAMS. The termination of this Agreement -------------------------- will not affect any vested rights that Employee may have at the Date of Termination under any Benefit Program. 3.4.7 COOPERATION. Following termination of employment with the Company ----------- for any reason, Employee will cooperate with the Company, as reasonably requested by the Company, to effect a transition of Employee's responsibilities and to ensure that the Company is aware of all matters being handled by Employee. Employee will, upon reasonable notice, furnish such information and assistance to the Company as may reasonably be required by the Company in connection with any legal or quasi-legal, proceeding, including any external or internal investigation, involving the Company or any of its affiliates or in which any of them is, or may become, a party. 3.5 BEST PAYMENT PROVISION. If the vesting of any option or the Contingent ---------------------- Bonus upon a Change of Control alone or together with all other payments and the value of any benefit received or to be received by Employee in connection with a Change of Control or the termination of the Employee's employment (whether pursuant to this Agreement or any other Plan, arrangement or agreement with the Company, any entity whose actions result in a Change of Control or any entity affiliated with the Company or such entity) would result in all or a portion of such payment to be subject to excise tax under Section 4999 of the Internal Revenue Code, then Employee's payment under this Agreement and the Contingent Bonus Plan and Award Agreement will be either (a) the full payment 6 provided that the shareholder approval requirements described in Section 280G(b)(5)(A)(ii) and (b)(5)(B) and the Treasury Regulations thereunder are met with respect to such payment or (b), if such shareholder approval requirement is not met, such lesser amount that would result in no portion of the payment being subject to excise tax under Section 4999 of the Internal Revenue Code. All determinations required to be made under this Section will be made by Coopers & Lybrand or any other nationally recognized accounting firm that is the Company's outside auditor at the time of such determination, which firm must be reasonably acceptable to Employee (the "ACCOUNTING FIRM"). The Company will cause the Accounting firm to provide detailed supporting calculations of its determinations to the Company and Employee. Notice must be given to the Accounting Firm within fifteen (15) business days after an event entitling Employee to a payment under this Agreement. All fees and expenses of the Accounting Firm will be borne solely by the Company. The Accounting Firm's determinations must be made with substantial authority (within the meaning of Section 6662 of the Code). 4. OTHER AGREEMENTS ---------------- 4.1 CONFIDENTIAL INFORMATION; ETC. ----------------------------- 4.1.1 CONFIDENTIAL INFORMATION. Employee will hold all Confidential ------------------------ Information in a fiduciary capacity for the benefit of the Company. After termination of Employee's employment, Employee will not, without the prior written consent of the Company or as may otherwise be required by court order, communicate or divulge any such Confidential Information to anyone other than the Company and those designated by it. 4.1.2 CLIENTS; EMPLOYEES. During the Term and Consulting Period, and ------------------ afterwards for a period of two (2) years, Employee will not (a) solicit customers, suppliers or clients of the Company to reduce or discontinue their business with the Company or to engage in business with any competing entity or (b) attempt to induce any employee of the Company to leave such employment. 4.1.3 PUBLICATIONS. If Employee desires to publish the results of ------------ Employee's work for or experiences with the Company through literature, interviews or speeches, Employee will submit requests for such interviews or such literature or speeches to the Board at least thirty (30) days before any anticipated dissemination of such information for a determination of whether such disclosure is in the best interests of the Company. Employee will not publish, disclose or otherwise disseminate such information without the prior written approval of the Company. 4.1.4 DOCUMENTS. On the Date of Termination, Employee shall deliver to --------- the Company and not keep or deliver to anyone else any and all notes, notebooks, memoranda, documents, regardless of whether such materials are in hard copy form or on computer disks, and, in general, any and all material, relating to the 7 Company's business. Employee shall not retain any such materials without prior written approval by the Company. 4.2 WORK PRODUCT. ------------ 4.2.1 OWNERSHIP OF WORK PRODUCT. If Employee conceives of, discovers, ------------------------- invents or creates inventions, improvements, new contributions, literary property, material, ideas and discoveries, whether patentable or copyrightable or not (all of the foregoing being collectively referred to herein as "WORK PRODUCT"), or receives information about business opportunities for the Company, unless Company otherwise agrees in writing, all of the foregoing will be owned by and belong exclusively to Company and that Employee will have no personal interest therein, if they are either related in any manner to the business (commercial or experimental) of Company, or are, in the case of Work Product, conceived or made on Company's time or with the use of Company's facilities or materials, or, in the case of business opportunities, are presented to Employee for the possible interest or participation of Company. Employee will further, unless Company otherwise agrees in writing, (a) promptly disclose any such Work Product and business opportunities to Company; (b) assign to Company, upon request and without additional compensation, the entire rights to such Work Product and business opportunities; (c) sign all papers necessary to carry out the foregoing; and (d) give testimony in support of Employee's inventorship or creation in any appropriate case. Employee will not assert any rights to any Work Product or business opportunity as having been made or acquired by Employee prior to the date of this Agreement except for Work Product or business opportunities, if any, disclosed to and acknowledged by Company in writing prior to the date hereof. 4.2.2 NONASSIGNABLE SECTION 2870 INVENTIONS. In the event that ------------------------------------- Employee's employment is subject to the California Labor Code, except for Employee's obligations under Section 4.2.3 below, this Agreement does not apply to Work Product which qualifies fully as a nonassignable Work Product under Section 2870 of the California Labor Code ("Section 2870"). Employee acknowledges that Employee has reviewed the Employee-Owned Invention Notification attached hereto as EXHIBIT C and agrees that Employee's signature on that Notification acknowledges his or her receipt thereof. 4.2.3 EMPLOYEE DISCLOSURE OBLIGATION. Employee shall, during the ------------------------------ employment and for six months thereafter, promptly disclose to the Company fully and in writing all Work Product made, conceived or first reduced to practice by Employee, either alone or jointly with others, including, if Section 2870 applies to Employee, any Work Product that Employee believes fully qualifies for protection under Section 2870, together with all evidence, in writing, necessary to substantiate that belief. In addition, Employee will disclose to the Company all patent applications filed by Employee or on Employee's behalf within a year after 8 termination of the employment. The Company will maintain such information in confidence and will not use for any purpose or disclose to third parties any such information without Employee's consent except to the extent necessary to exploit and enforce any proprietary or intellectual property rights the Company may have in such disclosed information. 4.3 INSURANCE. The Company will have the right to take out life, health, --------- accident, "Key-man" or other insurance covering Employee, in the name of the Company and at the Company's expense in any amount deemed appropriate by the Company. Employee will assist the Company in obtaining such insurance, including, but not limited to, submitting to any reasonably required medical examination. The Company will be the owner and beneficiary of any and all policies for such insurance. 4.4 ASSISTANCE IN LITIGATION. Employee will render assistance, advice and ------------------------ counsel to the Company at its request regarding any matter, dispute or controversy with which the Company may become involved and of which Employee has or may have reason to have knowledge, information or expertise. Such services will be without additional compensation if Employee is then employed by the Company and for reasonable compensation and subject to Employee's reasonable availability if Employee is not. In any event, the Company will pay all of Employee's reasonable out-of-pocket expenses in connection therewith. 4.5 WITHHOLDING TAXES. To the extent required by the law in effect at the time ----------------- any amounts under this Agreement are paid, the Company will withhold from such payments the taxes and other amounts required to be withheld by applicable law. 4.6 MEDICAL EXAMINATION. Employee will submit to and cooperate in, from time to ------------------- time, such examinations as the Company reasonably requests to determine whether Employee is or continues to be able to perform the essential functions of his/her position. 5. DISPUTE RESOLUTION ------------------ 5.1 DISPUTE RESOLUTION. Except as necessary for the Company to specifically ------------------ enforce its rights under Sections 1.4, 1.5, 4.1 and 4.2 of the Agreement or to obtain injunctive relief, the parties agree that any disputes that may arise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Employee's employment with the Company, the termination of that employment or any other dispute by and between the parties or their successors or assigns, will be submitted to binding arbitration in Los Angeles, California according to the Employment Dispute Resolution rules and procedures of the American Arbitration Association and California Code of Civil Procedure Section 1283.05. Each party will pay half of any costs associated with the arbitration. This arbitration obligation extends to any and all claims that may arise by and between the parties or their successors, assigns or affiliates, and expressly extends to, without limitation, claims or causes of action for wrongful 9 termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under the California or other State Constitutions, the United States Constitution, and applicable state and federal fair employment laws, federal equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, and the Age Discrimination in Employment Act of 1967. 5.2 RIGHTS AND REMEDIES UPON BREACH. If Employee breaches, or threatens to ------------------------------- commit a breach of, any of the provisions of Sections 1.4, 1.5, 4.1 and 4.2 of the Agreement (the "Restrictive Covenants"), the Company and its subsidiaries, affiliates, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, successors or assigns at law or in equity: 5.2.1 SPECIFIC PERFORMANCE. The right and remedy to have the -------------------- Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company or its subsidiaries, affiliates, successors or assigns and that money damages would not provide an adequate remedy to the Company or its subsidiaries, affiliates, successors or assigns; 5.2.2 ACCOUNTING. The right and remedy to require Employee to account ---------- for and pay over to the Company or its subsidiaries, affiliates, successors or assigns, as the case may be, all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any transaction or activity constituting a breach of the Restrictive Covenants; 5.2.3 SEVERABILITY OF COVENANTS. Employee acknowledges and agrees that ------------------------- the Restrictive Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions; 5.2.4 BLUE-PENCILING. If any court determines that any of the -------------- Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable; 10 5.2.5 ENFORCEABILITY IN JURISDICTIONS. Employee intends to and hereby ------------------------------- confers jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Employee that such determination not bar or in any way affect the Company's or its subsidiaries', affiliates', successors' or assigns' right to the relief provided above in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 5.3 PREVAILING PARTY. The prevailing party in any action relating to this ---------------- Agreement will be entitled to recover, in addition to other appropriate relief, reasonable legal fees, costs and expenses incurred in such action. 5.4 SUCCESSOR. The Company will require any successor (whether direct or --------- indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 6. GENERAL PROVISIONS ------------------ 6.1 ASSIGNMENT. This Agreement is a personal contract, and the rights, ---------- interests and obligations of Employee under this Agreement may not be sold, transferred, assigned, pledged or hypothecated by Employee, except that this Agreement may be assigned by the Company to any corporation or other business entity that succeeds to all or substantially all of the business of the Company or any division or subunit thereof through merger, consolidation, corporate reorganization or by acquisition of all or substantially all of the assets of the Company and that assumes the Company's obligations under this Agreement. The terms and conditions of this Agreement will inure to the benefit of and be binding upon any successor to the business of the Company and Employee's heirs and legal representatives. 6.2 AMENDMENTS; WAIVERS. Amendments, waivers, demands, consents and approvals ------------------- under this Agreement must be in writing and designated as such. No failure or delay in exercising any right will be deemed a waiver of such right. 6.3 INTEGRATION. This Agreement is the entire agreement between the parties ----------- pertaining to its subject matter, and supersedes all prior agreements and understandings of the parties in connection with such subject matter. 11 6.4 INTERPRETATION; GOVERNING LAW. This Agreement is to be construed as a whole ----------------------------- and in accordance with its fair meaning. This Agreement is to be interpreted in accordance with the laws of the State of California. 6.5 HEADINGS. Headings of Sections and subsections are for convenience only and -------- are not a part of this Agreement. 6.6 COUNTERPARTS. This Agreement may be executed in one or more counterparts, ------------ all of which constitute one agreement. 6.7 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to the ---------------------- benefit of each party and such party's respective heirs, personal representatives, successors and assigns. Nothing in this Agreement, express or implied, is intended to confer any rights or remedies upon any other person. 6.8 EXPENSES. Each party will pay its own expenses in the negotiation and -------- preparation of this Agreement. 6.9 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party acknowledges that it ----------------------------------------- has had the opportunity to be represented by counsel in connection with this Agreement. Any rule of law, including, but not limited to, Section 1654 of the California Civil Code, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it, has no application and is expressly waived. 6.10 TIME IS OF THE ESSENCE. Time is of the essence in the performance of each ---------------------- and every term, provision and covenant in this Agreement. 6.11 NOTICES. Any notice to be given hereunder must be in writing and delivered ------- to the following addresses (or to another address as either shall designate in writing). Such notice will be effective (a) if given by telecopy or if confirmed by returned telecopy, (b) one Business Day after delivery through a generally recognized and reputable overnight courier or messenger for next day deliver, (c) if given by mail or any other means, when actually delivered to the address specified. IF TO THE COMPANY: IF TO EMPLOYEE: ----------------- -------------- HCC Industries Inc, At Employee's most recent address on the 4232 Temple City Boulevard books and records of the Company. Rosemead, California 91770 Attention: Board of Directors 12 WITH A COPY TO: Windward Capital Partners, L.P. Eleven Madison Avenue 26th Floor New York, New York 10010 Attention: Thomas J. Sikorski The parties have signed this Agreement effective as of the date on page one. HCC INDUSTRIES INC. By: _____________________________ Its: ____________________________ EMPLOYEE __________________________________ Christopher H. Bateman 13 EXHIBIT A --------- DEFINED TERMS ------------- "EARNED AND UNPAID BONUSES" means with respect to any date, bonuses which have been earned by Employee as of the end of the Company's fiscal year preceding such date but not paid to Employee. "AGREEMENT" means this Employment Agreement, as amended from time to time. "AWARD AGREEMENT" means the Award Agreement, dated February __, 1997 between Employee and the Company pursuant to the Contingent Bonus Plan. "BASE SALARY" means the annual amount of $200,000. Commencing on the first anniversary of this Agreement and annually thereafter each year during the Term, Base Salary payments will be adjusted to reflect the increase, if any, in the cost of living during the previous year by adding to the Base Salary for the previous twelve-month period the amount obtained by multiplying such previous Base Salary by the percentage by which the level of the Consumer Price Index for the Long Beach--Los Angeles Area, and reported as of the last day of that twelve-month period by the Bureau of Labor Statistics of the United States Department of Labor, has increased over its level as of the prior anniversary of this Agreement (or with respect to the second year, the date of this Agreement). If the information is not available on the anniversary of this Agreement, the Base Salary will be adjusted retroactively immediately after such information becomes available, and Employee will be paid promptly thereafter a lump sum equal to the amounts Employee would have received, less actual amounts received, had such adjustments been made earlier. In no event will Base Salary be reduced. "BENEFIT PROGRAMS" means programs such as group health, dental, life and disability, profit sharing, pension and similar programs (but excluding bonus plans) made generally available to the senior executives of the Company. "BOARD" means the Company's Board of Directors as composed at the time, not including Employee. "BUSINESS DAY" means any day except a Saturday, Sunday or other day national banks in the State of California are authorized or required by law to close. "CHANGE OF CONTROL" has the meaning set forth in the Contingent Bonus Plan. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMON STOCK" means the Company's common stock, $0.10 par value. Exhibit A-1 "COMPANY" means HCC Industries Inc., a Delaware corporation, together with its subsidiaries. "CONFIDENTIAL INFORMATION" means information not known by the trade generally or not reasonably available to a knowledgeable person in the trade, even though such information may have been disclosed to one or more third parties pursuant to consulting agreements, joint research agreements, or other agreements entered into by the Company and includes, without limitation, trade secrets, designs, plans, formulas, customer lists, lists of suppliers, and all other confidential and proprietary information. "CONTINGENT BONUS PLAN" means the Contingent Bonus Plan, dated February 14, 1997 between the Company and the Participants, as that term is defined therein, Employee being one of the Participants. "DATE OF TERMINATION" means: (a) the end of the Term, if Employee's employment has not terminated before then; (b) if Employee's employment is terminated by the Company for Good Cause, or by Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (c) if Employee's employment is terminated by the Company other than for Good Cause or Unavailability, the date on which the Company notifies Employee of such termination; and (d) if Employee's employment is terminated by reason of death or Unavailability, the date of death of Employee or the effective date, of the Unavailability, as the case may be. "DISABILITY" means the Employee's inability to substantially render to the Company the services required under this Agreement for more than 60 days out of any consecutive 120 day period because of mental or physical illness or incapacity, as determined in good faith by the Board. "EBITDA" means the combined earnings before interest, federal and state income taxes, and depreciation and amortization of the Company and its subsidiaries determined in good faith by the Company in accordance with generally accepted accounting principles. "GOOD CAUSE" means a finding by the Board in good faith that Employee has (a) been engaged in an act or acts of dishonesty that were intended to and did result directly or indirectly in more gain or personal enrichment to Employee at the expense of the Company in excess of $5,000; (b) failed to substantially perform Employee's duties hereunder (other than failure resulting from Employee's Unavailability due to Disability) persisting for a Exhibit A-2 reasonable period following the delivery to Employee of written notice specifying the details of any alleged failure to perform, which failure has resulted in demonstrable and material injury and damage to the Company; (c) violated or failed to comply in any material respect with the Company's published rules, regulations or policies, as in effect from time to time; (d) breached this Agreement in any material respect; (e) been convicted of a felony offense or a misdemeanor offense involving fraud, theft or dishonesty at any time, which conviction Employee failed to disclose to the Company; or (f) been incarcerated for more than 10 days. An event specified in (b), (c) or (d) above will not constitute "GOOD CAUSE" until the Board provides Employee with written notice of such event setting forth in reasonable detail the specifics of such event and such event has not been cured to the reasonable satisfaction of the Board, if such act or event can be cured, within thirty days of such notice (except upon the subsequent occurrence of a substantially similar event, in which case such second event will constitute "Good Cause" without any notice or cure period). "GOOD REASON" means, other than an event also constituting Good Cause, the Company's material breach of this Agreement. "INCLUDING" or "INCLUDES," when following any general provision, sentence, clause, statement, term or matter, will be deemed to be followed by, but not limited to," and ", but is not limited to," respectively. "STOCKHOLDERS AGREEMENT" means the Stockholders Agreement, dated February 14, 1997 among the Company, Windward, Windward/Park, Windward/Merban, Windward/Merchant, and the Management Stockholders as defined therein. "TERM" means the period from the date hereof through the earlier of (a) April 3, 1999 or (b) the date Employee dies, becomes Unavailability, is terminated for any reason, or voluntarily terminates employment. "TRIGGERING EVENT" means any event which causes the acceleration of Contingent Bonuses under the Company's Contingent Bonus Plan dated the date hereof. "UNAVAILABILITY" means Employee being unable to fully perform Employee's duties by reason of illness, Disability or other incapacity, or by reason of any statute, law, ordinance, regulation, order, judgment or decree, except for an instance that would constitute Good Cause. Exhibit A-3 EXHIBIT B --------- BONUSES--BASE CASE & DOWNSIDE CASE ---------------------------------- Base Case--Employee Entitled to Additional Bonus Equal to 35% of Base Salary - ---------------------------------------------------------------------------- f/y/e 1998 $21,772,000 f/y/e 1999 $28,469,000 Downside Case--Employee Entitled to Additional Bonus Equal to 25% of Base Salary - -------------------------------------------------------------------------------- f/y/e 1998 $17,873,000 f/y/e 1999 $22,360,000 Exhibit B-1 EXHIBIT C --------- EMPLOYEE-OWNED INVENTION NOTIFICATION ------------------------------------- This Employee-Owned Invention Notification ("Notification") is to inform Employee in accordance with Section 2872 of the California Labor Code that the Agreement between Employee and the Company does not require Employee to assign or offer to assign to the Company any invention that Employee developed or develops entirely on his or her own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either: 1. Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company; or 2. Result from any work performed by Employee for the Company. To the extent a provision in the Agreement purports to require Employee to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of the State of California and is unenforceable. This Notification does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States. Employee acknowledges receipt of a copy of this Notification: By: ___________________________________ (Printed Name of Employee) Date: _________________________________ Witnessed By: ________________________________ (Printed Name of Representative) Dated: _________________________ EXHIBIT C-1 EX-10.9 16 EMPLOYMENT AGREEMENT--RICHARD FERRAID EXHIBIT 10.9 EMPLOYMENT AGREEMENT
TABLE OF CONTENTS ----------------- PAGE NO. -------- 1. Employment....................................................... 1 1.1 Term.................................................... 1 1.2 Title; Reporting; Policies.............................. 1 1.2.1 Title; Duties.................................... 1 1.2.2 Reporting........................................ 1 1.2.3 Policies......................................... 1 1.3 Place; Travel........................................... 1 1.3.1 Place of Employment.............................. 1 1.3.2 Travel........................................... 1 1.4 Exclusive; Outside Activities........................... 2 1.5 Consulting Services..................................... 2 2. Compensation and Benefits........................................ 3 2.1 Base Salary............................................. 3 2.2 Bonuses................................................. 3 2.3 Benefit Plans........................................... 3 2.4 Expenses................................................ 3 2.5 Car..................................................... 3 2.6 D&O Insurance........................................... 3 2.7 Vacation................................................ 3 2.8 Indemnity............................................... 4 2.9 Section 162(m) of the Code.............................. 4 3. Termination...................................................... 4 3.1 By Company.............................................. 4 3.1.1 Death............................................ 4 3.1.2 Unavailability................................... 4 3.1.3 Good Cause....................................... 4 3.1.4 Without Cause.................................... 4 3.2 By Employee............................................. 4 3.3 Notice of Termination................................... 4 3.4 Effect of Termination................................... 5 3.4.1 Death; Unavailability; Good Cause; or Termination by Employee Without Good Reason....... 5 3.4.2 Without Good Cause or for Good Reason............ 5 3.4.3 Waiver........................................... 5 3.4.5 Mitigation....................................... 6 3.4.6 Effect on Benefit Programs....................... 6 3.4.7 Cooperation...................................... 6 3.5 Best Payment Provision.................................. 6
(i)
TABLE OF CONTENTS ----------------- PAGE NO. -------- 4. Other Agreements................................................. 7 4.1 Confidential Information; etc........................... 7 4.1.1 Confidential Information......................... 7 4.1.2 Clients; Employees............................... 7 4.1.3 Publications..................................... 7 4.1.4 Documents........................................ 7 4.2 Work Product............................................ 8 4.2.1 Ownership of Work Product........................ 8 4.2.2 Nonassignable Section 2870 Inventions............ 8 4.2.3 Employee Disclosure Obligation................... 8 4.3 Insurance............................................... 9 4.4 Assistance in Litigation................................ 9 4.5 Withholding Taxes....................................... 9 4.6 Medical Examination..................................... 9 5. Dispute Resolution............................................... 9 5.1 Dispute Resolution...................................... 9 5.2 Rights and Remedies Upon Breach......................... 10 5.2.1 SPECIFIC PERFORMANCE............................. 10 5.2.2 ACCOUNTING....................................... 10 5.2.3 SEVERABILITY OF COVENANTS........................ 10 5.2.4 BLUE-PENCILING................................... 10 5.2.5 ENFORCEABILITY IN JURISDICTIONS.................. 11 5.3 Prevailing Party........................................ 11 5.4 Successor............................................... 11 6. General Provisions............................................... 11 6.1 Assignment.............................................. 11 6.2 Amendments; Waivers..................................... 11 6.3 Integration............................................. 11 6.4 Interpretation; Governing Law........................... 12 6.5 Headings................................................ 12 6.6 Counterparts............................................ 12 6.7 Successors and Assigns.................................. 12 6.8 Expenses................................................ 12 6.9 Representation by Counsel; Interpretation............... 12 6.10 Time is of the Essence.................................. 12 6.11 Notices................................................. 12
(ii) TABLE OF CONTENTS ----------------- PAGE NO. -------- Exhibit A - Defined Terms A-1 Exhibit B - Bonuses--Base Case & Downside Case B-1 Exhibit C - Employee-Owned Invention Notification C-1 (iii) EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is entered into as of February 14, 1997 by and between HCC Industries Inc., a Delaware corporation (the "COMPANY") and Richard L. Ferraid ("EMPLOYEE"). The parties agree as follows. The capitalized terms on EXHIBIT A have the meanings respectively assigned to them, which apply equally to the singular and plural forms of the terms. 1. EMPLOYMENT ---------- 1.1 TERM. The Company agrees to employ Employee for the Term, and Employee ---- accepts such employment. 1.2 TITLE; REPORTING; POLICIES. -------------------------- 1.2.1 TITLE; DUTIES. Employee will serve as President of Glasseal ------------- Products, Inc., a New Jersey corporation and subsidiary of the Company. Employee will faithfully perform the duties of Employee's office to the best of Employee's ability. Employee will have such duties and responsibilities as are generally consistent with such position in a company of comparable present and projected size. Employee will also serve without additional compensation in such executive capacities for one or more direct or indirect subsidiaries of the Company as the Board from time to time requests. Employee will also, subject to Employee's election as such, serve as a member of the Board, as well as a member of any committee of the Board to which Employee may be elected or appointed. 1.2.2 REPORTING. Employee will report directly to the President of the --------- Company and will be subject to the direction of the Board and to such limits on Employee's authority as the Board from time to time imposes. 1.2.3 POLICIES. Employee will be subject to and comply with the -------- policies, standards and procedures generally applicable to senior executives of the Company from time to time. 1.3 PLACE; TRAVEL. ------------- 1.3.1 PLACE OF EMPLOYMENT. Employee will be based at the Company's ------------------- principal executive offices in New Jersey. 1.3.2 TRAVEL. Employee will be expected to engage in frequent travel as ------ is required for the proper discharge of Employee's duties. 1 1.4 EXCLUSIVE; OUTSIDE ACTIVITIES. Employee will devote full and exclusive ----------------------------- business time to the Company. The foregoing will not prohibit Employee from: (a) passive ownership of real or personal property; (b) owning less than 5% of any class of securities of a corporation that is publicly held; (c) owning any class of securities of or being a partner in any other corporation or business not competing directly or indirectly with the Company or providing goods or services to the Company if, in each case, (x) such interests are held for investment, (y) Employee does not become involved in active management of an operating business, and (z) such ownership or management does not materially interfere with the performance of Employee's duties. Employee may also hold directorships or similar positions with nonprofit, charitable, community or other similar organizations, so long as such activities do not materially interfere with the performance of Employee's duties. Any other directorships or similar positions must be approved by the Board, which approval will not be unreasonably withheld. 1.5 CONSULTING SERVICES. Following any Date of Termination, in the Company's ------------------- sole discretion, the Company may retain Employee to serve as an exclusive consultant to the Company in the hermetic seal business for two (2) years (the "CONSULTING PERIOD"). During the Consulting Period, Employee will, at reasonable times and places, taking into account any other employment or activities Employee may then have, be available to consult with and advise the officers, directors and other representatives of the Company on any subjects that were within Employee's scope of duties during the Term. Employee will not be required to devote more than five (5) days per month to such consulting services, which five (5) days shall be subject to Employee's approval. Such commitment shall not be cumulative to the extent Employee does not provide services in any month. Employee will receive a monthly fee during the Consulting Period equal to one-twenty-fourth (1/24) of Employee's Base Salary in effect as of the Date of Termination if there has not been a Triggering Event. If there has been a Triggering Event, such monthly payments will cease and Employee will not receive any other separate compensation during the Consulting Period, since the aggregate of the other payments required under this Agreement and other benefits provided to Employee are intended in part to compensate Employee for the exclusive consulting services set forth in this Section. During the Consulting Period, Employee will be deemed to be an independent contractor, not an employee of the Company. During the Consulting Period, Employee shall not render services, advice or financing directly or indirectly for any business enterprise that competes directly or indirectly with the Company in the business of designing, manufacturing, servicing, distributing and selling hermetic seals, including, among others, glass to metal seals, in, among others, the automotive, defense, aviation, aerospace, petrochemical, telecommunications and process control industries in any county in the State of California, the names of all of which are deemed hereby to be specifically included herein by this reference, throughout the United States and North America, and anywhere else in the world. 2 2. COMPENSATION AND BENEFITS ------------------------- 2.1 BASE SALARY. Employee will be paid the Base Salary during the Term in ----------- accordance with the Company's policies. 2.2 BONUSES. If in any annual fiscal period during the term of this Agreement, ------- (i) the EBITDA of the Company equals at least the amount set forth on the "Downside Case" for such period on EXHIBIT B, Employee will be entitled to receive an annual bonus for such period equal to 25% of the Base Salary for such period or (ii) the EBITDA of the Company equals or exceeds the amount set forth on the "Base Case" for such period on EXHIBIT B, Employee will be entitled to receive an annual bonus equal to 35% of the Base Salary for such period; provided, that if the EBITDA of the Company exceeds the amount set forth on the "Downside Case" but does not equal or exceed the amount set forth on the "Base Case" for such period on EXHIBIT B, Employee will be entitled to receive an annual bonus for such period of between 25% and 35% of the Base Salary for such period, prorated based upon the amount that the EBITDA of the Company exceeds the amount set forth on the "Downside Case." 2.3 BENEFIT PLANS. During the Term, to the extent prior to December 23, 1996 ------------- that the Employee had participated in a particular Benefit Program (or plan substantially similar thereto), Employee will be entitled to participate in Benefit Programs substantially similar to the Benefit Programs in which Employee participates on the date hereof. 2.4 EXPENSES. The Company will pay or reimburse Employee for reasonable travel, -------- entertainment or other expenses Employee incurs on behalf of the Company in connection with the performance of Employee's duties if such expenses were of the nature that were reimbursed by the Company to employee prior to December 23, 1996. Any such expenses must be either specifically authorized by the Company or incurred in accordance with Company policies. Employee must furnish the Company with evidence relating to such expenses as the Company requires to substantiate such expenses for tax and accounting purposes. 2.5 CAR. To the extent prior to December 23, 1996 that the Company had provided --- a car to Employee, the Company will provide a car or reimburse Employee for car expenses and will provide maintenance and insurance in each case, in a manner consistent with present practice of the Company. 2.6 D&O INSURANCE. The Company will furnish Employee with the same Directors' ------------- and Officers' liability insurance furnished to other executive officers from time to time, and use reasonable efforts to name Employee as a named insured for four (4) years after the Term ends. 2.7 VACATION. Employee will be entitled to paid vacation in accordance with the -------- Company's policies applicable to other executive officers of the Company. Such vacation will be 3 taken at such time during each year as may be mutually agreed upon by the Company and Employee. 2.8 INDEMNITY. To the fullest extent permitted by applicable law, as from time --------- to time in effect, the Company will indemnify Employee and hold Employee harmless for any acts or decisions made in good faith in performing services for the Company. If Employee is a party to a definitive indemnification agreement with the Company, the foregoing sentence will not be applicable. 2.9 SECTION 162(M) OF THE CODE. Notwithstanding anything to the contrary in -------------------------- this Agreement, any payment under this Agreement that is not deductible because of Section 162(m) of the Code will not be paid until the first day that it is deductible. Any such deferred payment will bear interest at the short term federal rate determined under the Code. 3. TERMINATION ----------- 3.1 BY COMPANY. The compensation and other benefits provided to Employee under ---------- this Agreement, and the employment of Employee by the Company, can be terminated prior to the expiration of the Term only as set forth in this Section 3.1. 3.1.1 DEATH. All payments and benefits under this Agreement will ----- terminate upon Employee's death. 3.1.2 UNAVAILABILITY. Employee's employment will terminate upon the -------------- date as of which Employee is Unavailable, without further action or notice by the Company. 3.1.3 GOOD CAUSE. Employee's employment will terminate upon a ---------- determination that there is Good Cause for such termination. 3.1.4 WITHOUT CAUSE. The Board has the right to terminate Employee's ------------- employment at any time, with or without Good Cause. 3.2 BY EMPLOYEE. Employee can terminate employment under this Agreement if ----------- Employee has established Good Reason under the terms of this Agreement. 3.3 NOTICE OF TERMINATION. Any termination by the Company for Good Cause, or by --------------------- Employee for Good Reason, will be communicated by Notice of Termination to the other party hereto. A "NOTICE OF TERMINATION" will (a) indicate the specific termination provision in this Agreement relied upon, (b) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under such provisions and (c) if the Date of Termination is other than the date of receipt of such notice, specify the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by Employee 4 or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Good Cause will not waive any right of Employee or the Company hereunder or preclude Employee or the Company from asserting such fact or circumstance in enforcing Employee's or the Company's rights hereunder. 3.4 EFFECT OF TERMINATION. --------------------- 3.4.1 DEATH; UNAVAILABILITY; GOOD CAUSE; OR TERMINATION BY EMPLOYEE ------------------------------------------------------------- WITHOUT GOOD REASON . If during the Term Employee dies, becomes ------------------- Unavailable, is terminated for Good Cause, or resigns without Good Reason, the Company will pay to Employee (or Employee's estate) the sum of Employee's Base Salary and, in the case of Employee's Termination on account of Employee's death or Unavailability, Earned and Unpaid Bonuses, to which Employee was entitled through the Date of Termination and any other previously earned but unpaid compensation (excluding accrued bonuses other than, in the case of Death or Unavailability, Earned and Unpaid Bonuses) under this Agreement, in each case to the extent not previously paid (the "ACCRUED OBLIGATIONS"). The Accrued Obligations will be paid in a lump sum in cash within thirty (30) days after the Date of Termination. If employment is terminated due to Disability, Employee will, while Disabled, continue to participate in any insurance programs that are part of the Benefit Programs to the extent that such continued participation is possible under their terms. All accruals or vesting of benefits will terminate as of the Date of Termination. 3.4.2 WITHOUT GOOD CAUSE OR FOR GOOD REASON. If during the Term ------------------------------------- Employee's employment is terminated by the Company for any reason other than Employee's death, Unavailability or Good Cause, or by Employee for Good Reason, the Company will pay to Employee the Base Salary and any Earned and Unpaid Bonuses to which Employee would have been entitled for the remainder of the Term. Employee will also be entitled to continue to participate in any insurance programs that are part of the Benefit Programs, as though Employee remained an employee, for such period. Such amounts will be paid or provided to Employee at such times and in such manner as they would have been paid or provided if no such termination had occurred. If Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility. 3.4.3 WAIVER . If Employee elects to receive the payments, and accepts ------ the payments, set forth in this Section 3.4, Employee agrees that such payments will constitute Employee's sole and exclusive right and entitlement in connection with Employee's employment by the Company and the termination of such employment and any and all matters related to or arising in connection with such 5 employment. Employee's acceptance of such amounts will release the Company and its affiliated entities (including all directors, officers, employees and agents) from any claims that Employee might otherwise have or assert in connection with such matters. In addition, the Company is entitled to condition such payment on Employee's execution of a normal release. If Employee desires to pursue or enforce any such rights, entitlements or remedies that would otherwise be waived and released, then Employee must refuse the payments provided for in Section 3.4 in their entirety. If Employee accepts such payments, Employee will be deemed to have agreed to the foregoing exclusivity of rights and waiver of claims. 3.4.4 STOCKHOLDERS AGREEMENT. The Company and the Employee shall be ---------------------- subject to the "put" and "call" agreements set forth in the Stockholders Agreement. 3.4.5 MITIGATION. Employee shall have no obligation to seek or accept ---------- employment elsewhere after any termination under this Agreement pursuant to Section 3.4.2. Additionally, if Employee accepts employment elsewhere after any termination under this Agreement pursuant to Section 3.4.2, the Company will have no right to offset any amounts paid to Employee from such other employment during the remaining term hereof, including any benefits to which Employee is entitled under the other company's benefit plans and programs. 3.4.6 EFFECT ON BENEFIT PROGRAMS. The termination of this Agreement -------------------------- will not affect any vested rights that Employee may have at the Date of Termination under any Benefit Program. 3.4.7 COOPERATION. Following termination of employment with the Company ----------- for any reason, Employee will cooperate with the Company, as reasonably requested by the Company, to effect a transition of Employee's responsibilities and to ensure that the Company is aware of all matters being handled by Employee. Employee will, upon reasonable notice, furnish such information and assistance to the Company as may reasonably be required by the Company in connection with any legal or quasi-legal, proceeding, including any external or internal investigation, involving the Company or any of its affiliates or in which any of them is, or may become, a party. 3.5 BEST PAYMENT PROVISION. If the vesting of any option or the Contingent ---------------------- Bonus upon a Change of Control alone or together with all other payments and the value of any benefit received or to be received by Employee in connection with a Change of Control or the termination of the Employee's employment (whether pursuant to this Agreement or any other Plan, arrangement or agreement with the Company, any entity whose actions result in a Change of Control or any entity affiliated with the Company or such entity) would result in all or a portion of such payment to be subject to excise tax under Section 4999 of the Internal Revenue Code, then Employee's payment under this Agreement and the Contingent Bonus Plan and Award Agreement will be either (a) the full payment 6 provided that the shareholder approval requirements described in Section 280G(b)(5)(A)(ii) and (b)(5)(B) and the Treasury Regulations thereunder are met with respect to such payment or (b), if such shareholder approval requirement is not met, such lesser amount that would result in no portion of the payment being subject to excise tax under Section 4999 of the Internal Revenue Code. All determinations required to be made under this Section will be made by Coopers & Lybrand or any other nationally recognized accounting firm that is the Company's outside auditor at the time of such determination, which firm must be reasonably acceptable to Employee (the "ACCOUNTING FIRM"). The Company will cause the Accounting firm to provide detailed supporting calculations of its determinations to the Company and Employee. Notice must be given to the Accounting Firm within fifteen (15) business days after an event entitling Employee to a payment under this Agreement. All fees and expenses of the Accounting Firm will be borne solely by the Company. The Accounting Firm's determinations must be made with substantial authority (within the meaning of Section 6662 of the Code). 4. OTHER AGREEMENTS ---------------- 4.1 CONFIDENTIAL INFORMATION; ETC. ----------------------------- 4.1.1 CONFIDENTIAL INFORMATION. Employee will hold all Confidential ------------------------ Information in a fiduciary capacity for the benefit of the Company. After termination of Employee's employment, Employee will not, without the prior written consent of the Company or as may otherwise be required by court order, communicate or divulge any such Confidential Information to anyone other than the Company and those designated by it. 4.1.2 Clients; Employees. During the Term and Consulting Period, and ------------------ afterwards for a period of two (2) years, Employee will not (a) solicit customers, suppliers or clients of the Company to reduce or discontinue their business with the Company or to engage in business with any competing entity or (b) attempt to induce any employee of the Company to leave such employment. 4.1.3 PUBLICATIONS. If Employee desires to publish the results of ------------ Employee's work for or experiences with the Company through literature, interviews or speeches, Employee will submit requests for such interviews or such literature or speeches to the Board at least thirty (30) days before any anticipated dissemination of such information for a determination of whether such disclosure is in the best interests of the Company. Employee will not publish, disclose or otherwise disseminate such information without the prior written approval of the Company. 4.1.4 DOCUMENTS. On the Date of Termination, Employee shall deliver to --------- the Company and not keep or deliver to anyone else any and all notes, notebooks, memoranda, documents, regardless of whether such materials are in hard copy form or on computer disks, and, in general, any and all material, relating to the 7 Company's business. Employee shall not retain any such materials without prior written approval by the Company. 4.2 WORK PRODUCT. ------------ 4.2.1 OWNERSHIP OF WORK PRODUCT. If Employee conceives of, discovers, ------------------------- invents or creates inventions, improvements, new contributions, literary property, material, ideas and discoveries, whether patentable or copyrightable or not (all of the foregoing being collectively referred to herein as "WORK PRODUCT"), or receives information about business opportunities for the Company, unless Company otherwise agrees in writing, all of the foregoing will be owned by and belong exclusively to Company and that Employee will have no personal interest therein, if they are either related in any manner to the business (commercial or experimental) of Company, or are, in the case of Work Product, conceived or made on Company's time or with the use of Company's facilities or materials, or, in the case of business opportunities, are presented to Employee for the possible interest or participation of Company. Employee will further, unless Company otherwise agrees in writing, (a) promptly disclose any such Work Product and business opportunities to Company; (b) assign to Company, upon request and without additional compensation, the entire rights to such Work Product and business opportunities; (c) sign all papers necessary to carry out the foregoing; and (d) give testimony in support of Employee's inventorship or creation in any appropriate case. Employee will not assert any rights to any Work Product or business opportunity as having been made or acquired by Employee prior to the date of this Agreement except for Work Product or business opportunities, if any, disclosed to and acknowledged by Company in writing prior to the date hereof. 4.2.2 NONASSIGNABLE SECTION 2870 INVENTIONS. In the event that ------------------------------------- Employee's employment is subject to the California Labor Code, except for Employee's obligations under Section 4.2.3 below, this Agreement does not apply to Work Product which qualifies fully as a nonassignable Work Product under Section 2870 of the California Labor Code ("Section 2870"). Employee acknowledges that Employee has reviewed the Employee-Owned Invention Notification attached hereto as EXHIBIT C and agrees that Employee's signature on that Notification acknowledges his or her receipt thereof. 4.2.3 EMPLOYEE DISCLOSURE OBLIGATION. Employee shall, during the ------------------------------ employment and for six months thereafter, promptly disclose to the Company fully and in writing all Work Product made, conceived or first reduced to practice by Employee, either alone or jointly with others, including, if Section 2870 applies to Employee, any Work Product that Employee believes fully qualifies for protection under Section 2870, together with all evidence, in writing, necessary to substantiate that belief. In addition, Employee will disclose to the Company all patent applications filed by Employee or on Employee's behalf within a year after 8 termination of the employment. The Company will maintain such information in confidence and will not use for any purpose or disclose to third parties any such information without Employee's consent except to the extent necessary to exploit and enforce any proprietary or intellectual property rights the Company may have in such disclosed information. 4.3 INSURANCE. The Company will have the right to take out life, health, --------- accident, "Key-man" or other insurance covering Employee, in the name of the Company and at the Company's expense in any amount deemed appropriate by the Company. Employee will assist the Company in obtaining such insurance, including, but not limited to, submitting to any reasonably required medical examination. The Company will be the owner and beneficiary of any and all policies for such insurance. 4.4 ASSISTANCE IN LITIGATION. Employee will render assistance, advice and ------------------------ counsel to the Company at its request regarding any matter, dispute or controversy with which the Company may become involved and of which Employee has or may have reason to have knowledge, information or expertise. Such services will be without additional compensation if Employee is then employed by the Company and for reasonable compensation and subject to Employee's reasonable availability if Employee is not. In any event, the Company will pay all of Employee's reasonable out-of-pocket expenses in connection therewith. 4.5 WITHHOLDING TAXES. To the extent required by the law in effect at the time ------------------ any amounts under this Agreement are paid, the Company will withhold from such payments the taxes and other amounts required to be withheld by applicable law. 4.6 MEDICAL EXAMINATION. Employee will submit to and cooperate in, from time to ------------------- time, such examinations as the Company reasonably requests to determine whether Employee is or continues to be able to perform the essential functions of his/her position. 5. DISPUTE RESOLUTION ------------------ 5.1 DISPUTE RESOLUTION. Except as necessary for the Company to specifically ------------------ enforce its rights under Sections 1.4, 1.5, 4.1 and 4.2 of the Agreement or to obtain injunctive relief, the parties agree that any disputes that may arise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Employee's employment with the Company, the termination of that employment or any other dispute by and between the parties or their successors or assigns, will be submitted to binding arbitration in Los Angeles, California according to the Employment Dispute Resolution rules and procedures of the American Arbitration Association and California Code of Civil Procedure Section 1283.05. Each party will pay half of any costs associated with the arbitration. This arbitration obligation extends to any and all claims that may arise by and between the parties or their successors, assigns or affiliates, and expressly extends to, without limitation, claims or causes of action for wrongful 9 termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under the California or other State Constitutions, the United States Constitution, and applicable state and federal fair employment laws, federal equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, and the Age Discrimination in Employment Act of 1967. 5.2 RIGHTS AND REMEDIES UPON BREACH. If Employee breaches, or threatens to ------------------------------- commit a breach of, any of the provisions of Sections 1.4, 1.5, 4.1 and 4.2 of the Agreement (the "Restrictive Covenants"), the Company and its subsidiaries, affiliates, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, successors or assigns at law or in equity: 5.2.1 SPECIFIC PERFORMANCE. The right and remedy to have the -------------------- Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company or its subsidiaries, affiliates, successors or assigns and that money damages would not provide an adequate remedy to the Company or its subsidiaries, affiliates, successors or assigns; 5.2.2 ACCOUNTING. The right and remedy to require Employee to account ---------- for and pay over to the Company or its subsidiaries, affiliates, successors or assigns, as the case may be, all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any transaction or activity constituting a breach of the Restrictive Covenants; 5.2.3 SEVERABILITY OF COVENANTS. Employee acknowledges and agrees that ------------------------- the Restrictive Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions; 5.2.4 BLUE-PENCILING. If any court determines that any of the -------------- Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable; 10 5.2.5 ENFORCEABILITY IN JURISDICTIONS. Employee intends to and hereby ------------------------------- confers jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Employee that such determination not bar or in any way affect the Company's or its subsidiaries', affiliates', successors' or assigns' right to the relief provided above in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 5.3 PREVAILING PARTY. The prevailing party in any action relating to this ---------------- Agreement will be entitled to recover, in addition to other appropriate relief, reasonable legal fees, costs and expenses incurred in such action. 5.4 SUCCESSOR. The Company will require any successor (whether direct or --------- indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 6. GENERAL PROVISIONS ------------------ 6.1 ASSIGNMENT. This Agreement is a personal contract, and the rights, ---------- interests and obligations of Employee under this Agreement may not be sold, transferred, assigned, pledged or hypothecated by Employee, except that this Agreement may be assigned by the Company to any corporation or other business entity that succeeds to all or substantially all of the business of the Company or any division or subunit thereof through merger, consolidation, corporate reorganization or by acquisition of all or substantially all of the assets of the Company and that assumes the Company's obligations under this Agreement. The terms and conditions of this Agreement will inure to the benefit of and be binding upon any successor to the business of the Company and Employee's heirs and legal representatives. 6.2 AMENDMENTS; WAIVERS. Amendments, waivers, demands, consents and ------------------- approvals under this Agreement must be in writing and designated as such. No failure or delay in exercising any right will be deemed a waiver of such right. 6.3 INTEGRATION. This Agreement is the entire agreement between the parties ----------- pertaining to its subject matter, and supersedes all prior agreements and understandings of the parties in connection with such subject matter. 11 6.4 INTERPRETATION; GOVERNING LAW. This Agreement is to be construed as a ----------------------------- whole and in accordance with its fair meaning. This Agreement is to be interpreted in accordance with the laws of the State of California. 6.5 HEADINGS. Headings of Sections and subsections are for convenience only -------- and are not a part of this Agreement. 6.6 COUNTERPARTS. This Agreement may be executed in one or more ------------ counterparts, all of which constitute one agreement. 6.7 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to the ---------------------- benefit of each party and such party's respective heirs, personal representatives, successors and assigns. Nothing in this Agreement, express or implied, is intended to confer any rights or remedies upon any other person. 6.8 EXPENSES. Each party will pay its own expenses in the negotiation and -------- preparation of this Agreement. 6.9 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party acknowledges that ----------------------------------------- it has had the opportunity to be represented by counsel in connection with this Agreement. Any rule of law, including, but not limited to, Section 1654 of the California Civil Code, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it, has no application and is expressly waived. 6.10 TIME IS OF THE ESSENCE. Time is of the essence in the performance of ---------------------- each and every term, provision and covenant in this Agreement. 6.11 NOTICES. Any notice to be given hereunder must be in writing and ------- delivered to the following addresses (or to another address as either shall designate in writing). Such notice will be effective (a) if given by telecopy or if confirmed by returned telecopy, (b) one Business Day after delivery through a generally recognized and reputable overnight courier or messenger for next day deliver, (c) if given by mail or any other means, when actually delivered to the address specified. IF TO THE COMPANY: IF TO EMPLOYEE: - ----------------- -------------- HCC Industries Inc, At Employee's most recent address on the 4232 Temple City books and records of the Company. Boulevard Rosemead, California 91770 Attention: Board of Directors 12 WITH A COPY TO: - --------------- Windward Capital Partners, L.P. Eleven Madison Avenue 26th Floor New York, New York 10010 Attention: Thomas J. Sikorski The parties have signed this Agreement effective as of the date on page one. HCC INDUSTRIES INC. By: ------------------------- Its: ------------------------ EMPLOYEE ----------------------------- Richard L. Ferraid 13 EXHIBIT A --------- DEFINED TERMS ------------- "EARNED AND UNPAID BONUSES" means with respect to any date, bonuses which have been earned by Employee as of the end of the Company's fiscal year preceding such date but not paid to Employee. "AGREEMENT" means this Employment Agreement, as amended from time to time. "AWARD AGREEMENT" means the Award Agreement, dated February __, 1997 between Employee and the Company pursuant to the Contingent Bonus Plan. "BASE SALARY" means the annual amount of $200,000. Commencing on the first anniversary of this Agreement and annually thereafter each year during the Term, Base Salary payments will be adjusted to reflect the increase, if any, in the cost of living during the previous year by adding to the Base Salary for the previous twelve-month period the amount obtained by multiplying such previous Base Salary by the percentage by which the level of the Consumer Price Index for the Long Beach - Los Angeles Area, and reported as of the last day of that twelve-month period by the Bureau of Labor Statistics of the United States Department of Labor, has increased over its level as of the prior anniversary of this Agreement (or with respect to the second year, the date of this Agreement). If the information is not available on the anniversary of this Agreement, the Base Salary will be adjusted retroactively immediately after such information becomes available, and Employee will be paid promptly thereafter a lump sum equal to the amounts Employee would have received, less actual amounts received, had such adjustments been made earlier. In no event will Base Salary be reduced. "BENEFIT PROGRAMS" means programs such as group health, dental, life and disability, profit sharing, pension and similar programs (but excluding bonus plans) made generally available to the senior executives of the Company. "BOARD" means the Company's Board of Directors as composed at the time, not including Employee. "BUSINESS DAY" means any day except a Saturday, Sunday or other day national banks in the State of California are authorized or required by law to close. "CHANGE OF CONTROL" has the meaning set forth in the Contingent Bonus Plan. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMON STOCK" means the Company's common stock, $0.10 par value. Exhibit A-1 "COMPANY" means HCC Industries Inc., a Delaware corporation, together with its subsidiaries. "CONFIDENTIAL INFORMATION" means information not known by the trade generally or not reasonably available to a knowledgeable person in the trade, even though such information may have been disclosed to one or more third parties pursuant to consulting agreements, joint research agreements, or other agreements entered into by the Company and includes, without limitation, trade secrets, designs, plans, formulas, customer lists, lists of suppliers, and all other confidential and proprietary information. "CONTINGENT BONUS PLAN" means the Contingent Bonus Plan, dated February 14, 1997 between the Company and the Participants, as that term is defined therein, Employee being one of the Participants. "DATE OF TERMINATION" means: (a) the end of the Term, if Employee's employment has not terminated before then; (b) if Employee's employment is terminated by the Company for Good Cause, or by Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (c) if Employee's employment is terminated by the Company other than for Good Cause or Unavailability, the date on which the Company notifies Employee of such termination; and (d) if Employee's employment is terminated by reason of death or Unavailability, the date of death of Employee or the effective date, of the Unavailability, as the case may be. "DISABILITY" means the Employee's inability to substantially render to the Company the services required under this Agreement for more than 60 days out of any consecutive 120 day period because of mental or physical illness or incapacity, as determined in good faith by the Board. "EBITDA" means the combined earnings before interest, federal and state income taxes, and depreciation and amortization of the Company and its subsidiaries determined in good faith by the Company in accordance with generally accepted accounting principles. "GOOD CAUSE" means a finding by the Board in good faith that Employee has (a) been engaged in an act or acts of dishonesty that were intended to and did result directly or indirectly in more gain or personal enrichment to Employee at the expense of the Company in excess of $5,000; (b) failed to substantially perform Employee's duties hereunder (other than failure resulting from Employee's Unavailability due to Disability) persisting for a Exhibit A-2 reasonable period following the delivery to Employee of written notice specifying the details of any alleged failure to perform, which failure has resulted in demonstrable and material injury and damage to the Company; (c) violated or failed to comply in any material respect with the Company's published rules, regulations or policies, as in effect from time to time; (d) breached this Agreement in any material respect; (e) been convicted of a felony offense or a misdemeanor offense involving fraud, theft or dishonesty at any time, which conviction Employee failed to disclose to the Company; or (f) been incarcerated for more than 10 days. An event specified in (b), (c) or (d) above will not constitute "GOOD CAUSE" until the Board provides Employee with written notice of such event setting forth in reasonable detail the specifics of such event and such event has not been cured to the reasonable satisfaction of the Board, if such act or event can be cured, within thirty days of such notice (except upon the subsequent occurrence of a substantially similar event, in which case such second event will constitute "Good Cause" without any notice or cure period). "GOOD REASON" means, other than an event also constituting Good Cause, the Company's material breach of this Agreement. "INCLUDING" or "INCLUDES," when following any general provision, sentence, clause, statement, term or matter, will be deemed to be followed by, but not limited to," and ", but is not limited to," respectively. "STOCKHOLDERS AGREEMENT" means the Stockholders Agreement, dated February 14, 1997 among the Company, Windward, Windward/Park, Windward/Merban, Windward/Merchant, and the Management Stockholders as defined therein. "TERM" means the period from the date hereof through the earlier of (a) April 3, 1999 or (b) the date Employee dies, becomes Unavailability, is terminated for any reason, or voluntarily terminates employment. "TRIGGERING EVENT" means any event which causes the acceleration of Contingent Bonuses under the Company's Contingent Bonus Plan dated the date hereof. "UNAVAILABILITY" means Employee being unable to fully perform Employee's duties by reason of illness, Disability or other incapacity, or by reason of any statute, law, ordinance, regulation, order, judgment or decree, except for an instance that would constitute Good Cause. Exhibit A-3 EXHIBIT B --------- BONUSES--BASE CASE & DOWNSIDE CASE ---------------------------------- Base Case--Employee Entitled to Additional Bonus Equal to 35% of Base Salary - ----------------------------------------------------------------------------- f/y/e 1998 $21,772,000 f/y/e 1999 $28,469,000 Downside Case--Employee Entitled to Additional Bonus Equal to 25% of Base Salary - -------------------------------------------------------------------------------- f/y/e 1998 $17,873,000 f/y/e 1999 $22,360,000 Exhibit B-1 EXHIBIT C --------- EMPLOYEE-OWNED INVENTION NOTIFICATION ------------------------------------- This Employee-Owned Invention Notification ("Notification") is to inform Employee in accordance with Section 2872 of the California Labor Code that the Agreement between Employee and the Company does not require Employee to assign or offer to assign to the Company any invention that Employee developed or develops entirely on his or her own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either: 1. Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company; or 2. Result from any work performed by Employee for the Company. To the extent a provision in the Agreement purports to require Employee to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of the State of California and is unenforceable. This Notification does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States. Employee acknowledges receipt of a copy of this Notification: By: ------------------------- (Printed Name of Employee) Date: ------------------------ Witnessed By: - -------------------------------- (Printed Name of Representative) Dated: --------------------- EXHIBIT C-1 EX-10.10 17 FINANCIAL ADVISORY SERVICES AGREEMENT EXHIBIT 10.10 FINANCIAL ADVISORY SERVICES AGREEMENT, dated as of February 14, 1997 (the "Agreement") between Windward Capital Partners, L.P., a Delaware limited partnership (the "Advisor"), and HCC Industries Inc., a Delaware corporation (the "Company"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company has entered into the First Amendment and Restatement of the Stock Purchase and Sale Agreement (the "Purchase Agreement"), dated as of December 23, 1996, as amended, among Windward Capital Associates, L.P. ("Windward Associates"), Windward/Merchant, L.P. ("Windward/Merchant"), Windward/Park HCC, L.L.C. ("Windward/Park"), Windward/Merban, L.P. ("Windward/Merban", and collectively with Windward Associates, Windward/Merchant and Windward/Park, the "Windward Entities"), HCC Windward L.L.C., Metropolitan Life Insurance Company ("MetLife"), the Company and each of the stockholders of the Company set forth on the signature pages thereto (the "Sellers"); WHEREAS, the Company has entered into a Stockholders Agreement, dated as of the date hereof, among Windward Associates, Windward/Merchant, Windward/Park, Windward/Merban, the Company, the Sellers and the other stockholders of the Company listed therein (the "Stockholders Agreement"); WHEREAS, the Company has requested that the Advisor make available to the Company certain management and financial advisory services commencing on the date hereof; and WHEREAS, the Advisor desires to provide such management and financial advisory services to the Company commencing on the date hereof; NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, it is agreed as follows: 1. Engagement and Duties --------------------- (a) The Company hereby appoints the Advisor as an advisor to the Company, whereby the Advisor shall, from time to time, to the extent reasonably requested by the Company, provide those management and financial advisory services to the Company which are set forth in Section l(b) hereof. The Advisor hereby accepts such appointment and agrees to provide each of the services required to be provided by it under this Agreement and to make itself available from time-to-time, on a part-time basis, to consult with the management and Board of Directors of the Company in connection with such services. In addition to the services of its own personnel, the Advisor shall be permitted, to the extent that it determines in its sole discretion that it would be advisable or appropriate in order to perform its services hereunder, to arrange for and coordinate the services of other professionals, experts and consultants. (b) Upon the reasonable request of the Board of Directors of the Company, the Advisor hereby agrees to provide the following services to the Company and its subsidiaries: (i) review periodically the business, operations, financial condition and prospects of the Company and its subsidiaries, including, without limitation: (A) reviewing the strategic direction and plans of the Company and its subsidiaries; (B) reviewing and evaluating the annual business plan and budget of the Company and its subsidiaries; (C) reviewing and evaluating the sales, profitability and working capital and other financing requirements of the Company and its subsidiaries; and (D) reviewing the salary and benefit levels of the senior management of the Company and its subsidiaries and reviewing and evaluating the performance of the senior management of the Company and its subsidiaries; (ii) assist the Company in the planning, structuring and negotiation of each potential acquisition by the Company of another business operating within the Company's industry or any related industry; (iii) assist the Company in seeking out and negotiating with potential financing sources in connection with the financing of any transaction referred to in clause (ii) above; 2 (iv) provide to the Company such other management and financial advisory services as may be reasonably requested by the Board of Directors of the Company; and (v) assist the Company and its subsidiaries regarding any claims for indemnification on behalf of the Company or its subsidiaries pursuant to the Purchase Agreement. 2. Nature of Relationship. Notwithstanding the services ---------------------- provided by the Advisor, the Advisor shall be deemed to be an independent contractor and, unless otherwise expressly authorized by the Company's Board of Directors, shall not be authorized to manage the affairs of, act in the name of, or bind the Company. The Company shall not be obligated to follow or accept any advice or recommendation made by the Advisor, and the management, policies and operations of the Company shall be the sole responsibility of the Board of Directors and the management of the Company. The obligations of the Advisor to the Company are not exclusive, and the Advisor may, in its sole discretion, render the same or similar services to any other person or entity. Nothing set forth in this Agreement shall be deemed to prohibit the Advisor from serving any other person or entity in any capacity the Advisor may deem appropriate or from conducting its business and affairs in any manner it may elect, whether or not such activities might involve an actual or potential conflict of interest vis-a- vis the Company or any of its subsidiaries (other than with respect to a direct competitor who manufactures glass-to-metal seals). 3. Term. Subject to the termination provisions of Section 6 ---- hereof, the initial term of this Agreement shall commence on the date hereof and continue for a period of three (3) years following the date hereof; thereafter, the term of this Agreement shall be extended automatically for successive one-year periods unless the Board of Directors of the Company or the Advisor shall give written notice to the other party at least six (6) months prior to the end of the initial three-year term or prior to the end of any one-year extended period then in effect (as the case may be). 4. Compensation and Expenses. ------------------------- 3 (a) In consideration of the services to be provided by the Advisor to the Company, the Company shall pay the Advisor an annual management fee of $125,000 (the "Management Fee"), payable in semi-annual installments of $62,500 each on February 14 and August 14 of each year. Such semi-annual installments shall be paid at the beginning of each such semi-annual period with the first such semi-annual installment paid on the date hereof. The Company shall also pay or reimburse the Advisor for all Expenses (as defined below) in accordance with Section 4(b) below. Notwithstanding the foregoing, the payment of such semi-annual installments of the Management Fee shall be subject to any reasonable restrictions set forth in the Credit Agreement (as defined in the Purchase Agreement) as in effect on the date hereof. Upon any termination of this Agreement, the Management Fee payable with respect to the then-current semi-annual period shall be prorated to reflect the actual number of days during which this Agreement was in effect; provided that no proration shall be made by -------- the Company if the Company elects to terminate this Agreement as provided under Section 6(a) or if this Agreement is terminated as the result of the operation of Section 6(b) and the Advisor shall be entitled to the full Management Fee for such semi-annual period. (b) The term "Expenses" shall mean all fees, costs and expenses reasonably incurred by the Advisor in connection with its provision of services hereunder, including, without limitation: (i) all fees and expenses of legal counsel, accountants and other consultants and experts retained by the Advisor in connection with its provision of services hereunder, (ii) all travel and other out-of-pocket costs and expenses incurred by the Advisor in connection herewith, and (iii) all Losses that are the subject of indemnification pursuant to this Agreement. The Company shall reimburse the Advisor promptly for all Expenses upon the Advisor's presentation of invoices or other documents reasonably evidencing such Expenses. 5. Indemnification, Etc. -------------------- (a) The Company shall, to the fullest extent permitted by law, indemnify the Advisor and each officer, director, employee, partner, Affiliate (as defined in the Purchase Agreement), agent and representative 4 of the Advisor (collectively, the "Indemnitees") against, and the Company will hold harmless and will release each Indemnitee from, any and all Losses (as defined below), including any incurred in connection with any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or commission, whether pending or threatened, whether or not any Indemnitee is or may be a party thereto, which arise out of, relate to or are in connection with the provision of any services hereunder or otherwise relate to this Agreement or the management or conduct of the business or affairs of the Company or any of its subsidiaries, except for any Losses that are found by a court of competent jurisdiction to have resulted primarily from the gross negligence or willful misconduct of the Indemnitee seeking indemnification. The term "Losses" shall mean all losses, claims, damages or liabilities of each Indemnitee, joint or several, and all judgments, fines, penalties, interest and charges, and all costs and expenses incurred in connection with the investigation, defense or settlement of any pending or threatened claims (including, without limitation, attorneys' fees and expenses related thereto). (b) The termination of any proceeding by settlement shall not, of itself, create a presumption that the Indemnitee acted in a manner which constituted gross negligence, willful misconduct or a knowing violation of law. The right of any Indemnitee to the indemnification provided herein shall be cumulative of, and in addition to, any and all rights to which such Indemnitee may otherwise be entitled by contract or as a matter of law or equity and shall extend to his heirs, successors, assigns and legal representatives. (c) Promptly after receipt by an Indemnitee hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 5, such Indemnitee will, if a claim in respect thereof is to be made against the Company, promptly give written notice to the Company of the commencement of such action; provided that the failure of any Indemnitee to give notice as provided -------- herein shall not relieve the Company of its obligations under this Section 5, except to the extent that the Company is actually and materially prejudiced 5 by such failure to give notice. In case any such action is brought against an Indemnitee, unless in such Indemnitee's reasonable judgment a conflict of interest between such Indemnitee and the Company may exist in respect of such claim, the Company will be entitled to participate in and to assume the defense thereof, to the extent that it may wish, with counsel reasonably satisfactory to such Indemnitee, and after notice from the Company of its election so to assume the defense thereof, the Company will not be liable to such Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof, unless in such Indemnitee's reasonable judgment a conflict of interest between the Indemnitee and the Company arises in respect of such claim after the assumption of the defense thereof (in which case, the Company shall not assume the defense thereof, but shall be responsible for the fees and expenses of one counsel in each jurisdiction for all parties indemnified by the Company, subject to the same exception as is set forth in the last sentence of this subsection (c)), and the Company will not be subject to any liability for any settlement made without its consent (which consent shall not be unreasonably withheld). The Company will not consent to entry of any judgment or enter into any settlement (i) which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all liability in respect to such claim or litigation, and (ii) that imposes any obligation on an Indemnitee (except any obligation to make payments which the Company shall, and promptly does, pay). If the Company elects not to assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by the Company with respect to such claim, unless in the reasonable judgment of any Indemnitee a conflict of interest may exist between such Indemnitee and any other of such Indemnitees with respect to such claim, in which event the Company shall be obligated to pay the fees and expenses of such additional counsel or counsels. (d) Notwithstanding any termination of this Agreement pursuant to Section 6, the expiration of the term hereof pursuant to Section 2 or otherwise, the indemnification provided under this Agreement shall remain in full force and effect thereafter. 6 (e) No Indemnitee shall be liable to the Company or its subsidiaries for any error of judgment or mistake of law or for any loss incurred by the Company or its subsidiaries or any of their respective Affiliates in connection with the matters to which this Agreement relates, except for any damages that are found by a court of competent jurisdiction to have resulted primarily from the gross negligence or willful misconduct of the Indemnitee seeking indemnification. In no event shall the Advisor or any Indemnitee be liable for any indirect, special or consequential damages arising out of or in connection with this Agreement. The Advisor and the Indemnitees may consult with legal counsel, accountants and other consultants and experts in respect of the affairs of the Company and its subsidiaries and shall be fully protected and justified in acting, or failing to act, in a manner consistent with the advice or opinion of such legal counsel, accountants and other consultants and experts. 6. Termination. Notwithstanding anything to the contrary ----------- contained in this Agreement, (a) this Agreement may be terminated by either the Advisor or the Company upon at least six (6) months prior written notice to the other party, and (b) this Agreement shall terminate automatically without any action on the part of either party hereto upon (i) the consummation of an IPO Event or a Compelled Sale (such terms, as defined in the Stockholders Agreement), (ii) Windward Entities no longer control at least 25% of the outstanding Common Stock (as defined in the Purchase Agreement) or (iii) any termination of the Stockholders Agreement in accordance with the terms thereof. 7. Notices. Any notice, request, demand, waiver, consent, ------- approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally to the address set forth below (to the attention of the person identified below) or sent by telefax, telegram or by registered or certified mail, postage prepaid, return receipt requested as follows: 7 If to the Company: HCC Industries Inc. 4232 Temple City Blvd. Rosemead, CA 91770 Attention: Andy Goldfarb Telephone: (818) 449-8933 Telecopier: (818) 443-9074 If to the Advisor: Windward Capital Partners, L.P. Eleven Madison Avenue, 28th floor New York, NY 10010 Attention: Mr. Thomas J. Sikorski Telephone: (212) 448-5720 Telecopier: (212) 448-5481 or to such other address as the addressee may have specified in a notice duly given to the sender and to counsel as provided herein. Any notice, request, demand, waiver, consent, approval or other communication given (a) personally shall be effective when delivered, (b) by mail or telegram shall be effective when received and (c) by telecopy shall be effective when the appropriate telecopy answer back or confirmation is received. 8. Entire Agreement. This Agreement constitutes the entire ---------------- agreement among the parties with respect to the subject matter hereof. It supersedes any prior agreement or understanding among them, and it may not be modified or amended in any manner other than by an instrument in writing signed by both parties hereto, or their respective successors or assigns, or otherwise as provided herein. 9. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND ------------- INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF. 10. Successors and Assigns. Except as herein otherwise ---------------------- specifically provided, this Agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, heirs, administrators, executors, successors and assigns. 8 11. Force Majeure. If the performance by the Advisor of any of ------------- its services hereunder is prevented, restricted or interfered with in whole or in part by reason of any event or cause whatsoever beyond the reasonable control of the Advisor, then in any such event, the Advisor shall be excused from such performance to the extent of such prevention, restriction or interference, and the Management Fee payable hereunder shall be reduced proportionately. 12. Captions. Captions contained in this Agreement are inserted -------- only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provision hereof. 13. Severability. If any provision of this Agreement, or the ------------ application of such provision to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. 14. Waivers. No provision of this Agreement shall be deemed to ------- have been waived unless such waiver is contained in a written notice given to the party claiming such waiver, and no such waiver shall be deemed to be a waiver of any other or further obligation or liability of the party or parties in whose favor the waiver was given. 15. Counterparts. This Agreement may be executed in ------------ counterparts, each of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. WINDWARD CAPITAL PARTNERS, L.P. By: Windward Management, Inc., its general partner By:_________________________________ Name: Title: HCC INDUSTRIES INC. By:_________________________________ Name: Title: EX-10.11 18 LETTER AGREEMENT EXHIBIT 10.11 HCC Industries Inc. 4232 Temple City Blvd. Rosemead, CA 91770 February 14, 1997 Windward Capital Partners, L.P. Eleven Madison Avenue 26th floor New York, New York 10010 Ladies and Gentlemen: The Windward Entities (as defined below) have retained you, Windward Capital Partners, L.P., a Delaware limited partnership ("Windward"), to provide certain consulting and advisory services ("Services") in connection with the transactions contemplated by the First Amendment and Restatement of the Stock Purchase and Sale Agreement (the "Purchase Agreement"), dated as of December 23, 1996, between the Company, Windward Capital Associates, L.P. ("Windward Associates"), Windward/Merchant, L.P. ("Windward/Merchant"), Windward/Park HCC, L.L.C. ("Windward/Park"), Metropolitan Life Insurance Company ("MetLife"), Windward/Merban, L.P. (collectively with Windward, Windward Associates, MetLife, Windward/Merchant and Windward/Park, the "Windward Entities"), HCC Windward L.L.C., and each of the stockholders of the Company set forth on the signature pages thereto, as contemplated in Exhibit B of the Purchase Agreement. We understand that the Services include, without limitation, advice with respect to structuring the transactions contemplated by the Purchase Agreement (the "Recapitalization"), the financing of the Recapitalization and the negotiation of the Purchase Agreement. The Company agrees to promptly reimburse Windward on behalf of each of the Windward Entities for the reasonable out-of-pocket costs and expenses of the Windward Entities up to an aggregate total of $2,750,000 incurred in connection with the performance of the Services by Windward and in connection with the transactions contemplated in the Purchase Agreement with respect to the Windward Entities. The Company hereby agrees to indemnify Windward and its affiliates, and their respective officers, directors, employees, agents, partners and control persons (as such term is used in the Securities Act of 1933 and the rules and regulations thereunder) (together, the "Windward Indemnities") to the full extent lawful against any and all claims, losses and expenses as incurred (including amounts paid in settlement and all reasonable fees and disbursements of any such indemnitee's counsel and other out-of-pocket expenses incurred in connection with the investigation of and preparation for any such pending or threatened claims and any litigation or other proceedings arising therefrom) arising out of any Services rendered by Windward, provided, however, there shall -------- ------- be excluded from such indemnification any such claim, loss or expense that is based upon any action or failure to act by Windward that is found in a final judicial determination to constitute gross negligence or intentional misconduct on Windward's part. The Company will advance costs and expenses, including attorney's fees, incurred by any such indemnitee in defending any such claim in advance of the final disposition of such claim upon receipt of an undertaking by or on behalf of such indemnitee to repay amounts so advanced if it shall ultimately be determined that such indemnitee is not entitled to be indemnified by the Company pursuant to this letter agreement. With respect any such claim, loss or expense, Windward may settle any claim or litigation prior to a final judgement thereon or forego appeal with respect thereto, in either case, with the prior written consent of the Company, which consent shall not be unreasonably withheld. The Company will not consent to entry of any judgment or enter into any settlement (i) which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Windward Indemnitee of a release from all liability in respect to such claim or litigation, and (ii) that imposes any obligation on an Windward Indemnitee (except any obligation to make payments which the Company shall, and promptly does, pay). No Windward Indemnitee shall be liable to the Company or its respective subsidiaries or affiliates for any error of judgment or mistake of law or for any loss incurred by the Company or its subsidiaries or any of their respective affiliates in connection with the matters to which this letter agreement relates, except for any damages that are found by a court of competent jurisdiction to have resulted primarily from the gross negligence or willful misconduct of the Windward Indemnitee. This agreement shall be governed by and interpreted and enforced in accordance with the substantive laws of the State of New York, without giving effect to the choice of law principles thereof. If you are in agreement with the foregoing, kindly so indicate by signing a counterpart of this letter, whereupon it will become a binding agreement between us. Very truly yours, HCC INDUSTRIES INC. By:____________________________________ Name: Title: WINDWARD CAPITAL ASSOCIATES, L.P. By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: WINDWARD/PARK HCC L.L.C. By: Windward Capital Associates, L.P., its manager By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: WINDWARD/MERBAN, L.P. By: Windward Capital Associates, L.P., its general partner By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: WINDWARD/MERCHANT, L.P. By: Windward Capital Associates, L.P., its general partner By: Windward Capital Associates, Inc., its general partner By:_______________________________ Name: Title: THE METROPOLITAN LIFE INSURANCE COMPANY By:_______________________________ Name: Title: Accepted and agreed as of February 14, 1996 WINDWARD CAPITAL PARTNERS, L.P. By: Windward Management, Inc., its general partner By:__________________________________ Name: Title: EX-10.12 19 PURCHASE AGREEMENT EXHIBIT 10.12 $90,000,000 HCC INDUSTRIES INC. 10 3/4% SENIOR SUBORDINATED NOTES PURCHASE AGREEMENT ------------------ May 1, 1997 Credit Suisse First Boston Corporation Furman Selz LLC c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010 Dear Sirs: 1. Introductory. HCC Industries Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to Credit Suisse First Boston Corporation ("CSFBC") and Furman Selz LLC (each an initial "Purchaser") $90,000,000 principal amount of its 10 3/4% Senior Subordinated Notes ("Securities") to be issued under an indenture, dated as of May 6, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors referred to therein and IBJ Schroder Bank & Trust Company as Trustee. The United States Securities Act of 1933 is herein referred to as the "Securities Act." For purposes of this Agreement, "Subsidiary Guarantors" shall refer to Hermetic Seal Corporation, a Delaware corporation, Glasseal Products, Inc., a New Jersey corporation, Sealtron Inc., a Delaware corporation, Sealtron Acquisition Corp., a Delaware corporation, and HCC Industries International, a California corporation. The Company hereby agrees with the Purchasers as follows: 2. Representations and Warranties of the Company and Subsidiary Guarantors. The Company and each Subsidiary Guarantor, jointly and severally, represents and warrants to, and agrees with, the Purchasers that: (a) A preliminary offering circular and an offering circular relating to the Securities have been prepared by the Company. Such preliminary offering circular and offering circular, as supplemented as of the date of this Agreement, together with the documents listed in Schedule B hereto and any other document approved by the Company for use in connection with the contemplated resale of the Securities are hereinafter collectively referred to as the "Offering Document." As of their respective dates, and in the case of the offering circular, on the date of this Agreement, the Offering Document does not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The information required to be delivered to holders and prospective purchasers of the Securities pursuant to the Indenture in accordance with Rule 144A(d)(4) under the Securities Act (the "Additional Issuer Information") does not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding two sentences do not apply to statements in or omissions from the Offering Document based upon written information furnished to the Company by either Purchaser through CSFBC specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. (b) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification. (c) Each subsidiary of the Company has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and each subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of each subsidiary owned by the Company, directly or through subsidiaries, is owned free from liens, encumbrances and defects, except liens in connection with the credit facilities (as defined in the Offering Document). (d) The Indenture has been duly authorized by the Company and each of the Subsidiary Guarantors; the Securities have been duly authorized; and when the Securities are delivered and paid for pursuant to this Agreement on the Closing Date (as defined below), the Indenture will have been duly executed and delivered by the Company and each of the Subsidiary Guarantors, such Securities will have been duly executed, authenticated, issued and delivered and will conform to the description thereof contained in the Offering Document and the Indenture and such Securities will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws now or hereinafter in effect of general applicability relating to or affecting creditors' rights and to general equity principles. (e) The Guarantees have been duly and validly authorized by each Subsidiary Guarantor and will conform in all material respects to the description thereof in the Offering Document and, when executed by each Subsidiary Guarantor and authenticated by the Trustee in accordance with the Indenture and issued and delivered in accordance with the terms of this Agreement and the Indenture, will be valid and binding obligations of such Subsidiary Guarantor entitled to the benefits of the Indenture enforceable against such Subsidiary Guarantor in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws now or hereinafter in effect of general applicability relating to affecting creditors' rights generally and to general equity principles. (f) Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 4 of this Agreement, no consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with either the issuance and sale of the Securities by the Company or the issuance of the Guarantees by the Subsidiary Guarantors, except as may be required under the Securities Act and the Rules and Regulations of the Securities and Exchange Commission (the "SEC") with respect to the Registration Rights Agreement, the Exchange Offer and the transactions contemplated thereunder or state or foreign securities laws or by the regulations of the National Association of Securities Dealers, Inc. (g) The execution, delivery and performance of the Indenture, the Guarantees and this Agreement, and the issuance and sale of the Securities and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by-laws of the Company or any such subsidiary (except for such violations (other than violations of the Company's and the Subsidiary Guarantors' charters and bylaws and orders) which would not in the aggregate have a material 2 adverse effect on the Company and its subsidiaries taken as a whole), and the Company has full power and authority to authorize, issue and sell the Securities as contemplated by this Agreement, and each Subsidiary Guarantor has full power and authority to authorize and issue the Guarantees as contemplated by the Indenture. (h) Each of this Agreement and the Registration Rights Agreement among the Company, the Subsidiary Guarantors and the Purchasers has been duly authorized, executed and delivered by the Company and each Subsidiary Guarantor. (i) Except as disclosed in the Offering Document, the Company and its subsidiaries have good and marketable title to all real properties and all other material properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and except as disclosed in the Offering Document, the Company and its subsidiaries hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. (j) The Company and its subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. (k) No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent that might have a material adverse effect on the Company and its subsidiaries taken as a whole. (l) The Company and its subsidiaries own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. (m) Except as disclosed in the Offering Document, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "environmental laws"), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole; and the Company is not aware of any pending investigation which might lead to such a claim. (n) Except as disclosed in the Offering Document, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole, or would materially and adversely affect the ability of the Company to perform its obligations under the Indenture or this Agreement, or which are otherwise material in the context of the sale of the Securities; and no such actions, suits or proceedings are threatened or, to the Company's knowledge, contemplated. 3 (o) The financial statements included in the Offering Document present fairly the financial position of the Company and its consolidated subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis; and the assumptions used in preparing the pro forma financial statements included in the Offering Document provide a reasonable basis for presenting the significant effects directly attributable to the transactions or events described therein (provided that other assumptions may also be reasonable), the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma columns therein reflect the proper application of those adjustments to the corresponding historical financial statement amounts. (p) Except as disclosed in the Offering Document, since the date of the latest audited financial statements included in the Offering Document there has been no material adverse change, nor, to the best of the Company's knowledge, any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Offering Document, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (q) The Company is not an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the United States Investment Company Act of 1940 (the "Investment Company Act"), nor is it a closed-end investment company required to be registered, but not registered, thereunder; and the Company is not and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Offering Document, will not be an "investment company" as defined in the Investment Company Act. (r) No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Securities are listed on any national securities exchange registered under Section 6 of the United States Securities Exchange Act of 1934 ("Exchange Act") or quoted in a U.S. automated inter-dealer quotation system. (s) Assuming the accuracy of the representations and warranties of each of the Purchasers in Section 4 hereof and due performance and compliance by each of the Purchasers of their obligations under this Agreement and the Offering Document, the offer and sale of the Securities in the manner contemplated by this Agreement will be exempt from the registration requirements of the Securities Act by reason of Section 4(2) thereof and Regulation S thereunder; and it is not necessary to qualify an indenture in respect of the Securities under the United States Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (t) Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf (i) has, within the six-month period prior to the date hereof, offered or sold in the United States or to any U.S. person (as such terms are defined in Regulation S under the Securities Act) the Securities or any security of the same class or series as the Securities or (ii) has offered or will offer or sell the Securities (A) in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (B) with respect to any such securities sold in reliance on Rule 903 of Regulation S ("Regulation S") under the Securities Act, by means of any directed selling efforts within the meaning of Rule 902(b) of Regulation S. The Company, its affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S. The Company has not entered and will not enter into any contractual arrangement with respect to the distribution of the Securities except for this Agreement. 3. Purchase, Sale and Delivery of Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Purchasers, and the Purchasers agree, severally and not jointly, to purchase from the Company, at a purchase price of 97% of the principal amount thereof plus accrued interest, if any, from May 6, 1997 to the Closing Date 4 (as hereinafter defined), the respective principal amounts of Securities set forth opposite the names of the Purchasers in Schedule A hereto. The Company will deliver against payment of the purchase price the Securities to be offered and sold by the Purchasers in reliance on Regulation S (the "Regulation S Securities") in the form of one or more temporary global securities in registered form without interest coupons (the "Regulation S Global Securities") which will be deposited with the Trustee as custodian for The Depository Trust Company ("DTC") for the respective accounts of the DTC participants for Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System ("Euroclear"), and Cedel Societe Anonyme ("Cedel") and registered in the name of Cede & Co., as nominee for DTC. The Company will deliver against payment of the purchase price the Securities to be purchased by each Purchaser hereunder and to be offered and sold by each Purchaser in reliance on Rule 144A under the Securities Act (the "144A Securities") in the form of one permanent global security in definitive form without interest coupons (the "Restricted Global Securities") deposited with the Trustee as custodian for DTC and registered in the name of Cede & Co., as nominee for DTC. The Regulation S Global Securities and the Restricted Global Securities shall be assigned separate CUSIP numbers. The Restricted Global Securities shall include the legend regarding restrictions on transfer set forth under "Transfer Restrictions" in the Offering Document. Until the termination of the restricted period (as defined in Regulation S) with respect to the offering of the Securities, interests in the Regulation S Global Securities may only be held by the DTC participants for Euroclear and Cedel. Interests in any permanent global Securities will be held only in book-entry form through Euroclear, Cedel or DTC, as the case may be, except in the limited circumstances described in the Offering Document. Payment for the Regulation S Global Securities and the Restricted Global Securities shall be made by the Purchasers in Federal (same day) funds by official check or checks or wire transfer to an account at a bank acceptable to CSFBC by the Company drawn to the order of the Company at the office of Skadden, Arps, Slate, Meager & Flom LLP at 10:00 A.M., (New York time), on May 6, 1997, or at such other time not later than seven full business days thereafter and date as CSFBC and the Company determine, such time being herein referred to as the "Closing Date", against delivery to the Trustee as custodian for DTC of (i) the Regulation S Global Securities representing all of the Regulation S Securities for the respective accounts of the DTC participants for Euroclear and Cedel and (ii) the Restricted Global Securities representing all of the 144A Securities. The Regulation S Global Securities and the Restricted Global Securities will be made available for checking at the above office of Skadden, Arps, Slate, Meager & Flom LLP at least 24 hours prior to the Closing Date. Notwithstanding the foregoing, any Securities sold to Institutional Accredited Investors (as hereinafter defined) pursuant to Section 4(c) shall be issued in definitive, fully registered form and shall bear the legend relating thereto set forth under "Transfer Restrictions" in the Offering Document, but shall be paid for in the same manner as any Securities to be purchased by the Purchasers hereunder and to be offered and sold by them in reliance on Rule 144A under the Securities Act. 4. Representations by Purchasers; Resale by Purchasers. (a) Each Purchaser severally represents and warrants to the Company that it is an "accredited investor" within the meaning of Regulation D under the Securities Act. (b) Each Purchaser severally acknowledges that the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. Each Purchaser severally represents and agrees that it has offered and sold the Securities and will offer and sell the Securities (i) as part of their distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 144A ("Rule 144A") or Rule 903 under the Securities Act or CSFBC, or Furman Selz LLC if authorized by CSFBC, to a limited number of Institutional Accredited Investors in accordance with subsection (c). Accordingly, each Purchaser, severally, represents, warrants and agrees that neither such Purchaser nor its affiliates, nor any persons acting on its or their 5 behalf, have engaged or will engage in any directed selling efforts with respect to the Securities, and such Purchaser, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S and any applicable foreign securities laws, regulations or restrictions in connection with the offering of the Securities outside the United States. Each Purchaser severally agrees that, at or prior to confirmation of sale of the Securities, other than a sale pursuant to Rule 144A or a sale to an Institutional Accredited Investor in accordance with subsection (c), such Purchaser will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases the Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the date of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meanings given to them by Regulation S." Terms used in this subsection (b) have the meanings given to them by Regulation S. (c) CSFBC, and Furman Selz LLC, if authorized by CSFBC, may offer and sell Securities in definitive, fully registered form to a limited number of institutions, each of which is reasonably believed by the applicable Purchaser to be an "accredited investor" within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act or an entity in which all of the equity owners are accredited investors within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act (each, an "Institutional Accredited Investor"); provided that each such Institutional Accredited Investor executes and delivers to such Purchaser and the Company, prior to the consummation of any sale of Securities to such Institutional Accredited Investor, a Purchaser's Letter in substantially the form attached hereto as Schedule C (a "Purchaser's Letter"). (d) Each Purchaser severally represents, warrants and agrees that it and each of its affiliates has not entered, and will not enter, into any contractual arrangement with respect to the distribution of the Securities except for any such arrangements with the other Purchaser or affiliates of the other Purchaser or with the prior written consent of the Company. (e) Each of the Purchasers severally represents and agrees that (i) it has not offered or sold and prior to the date six months after the date of issue of the Securities will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. (f) Each Purchaser severally represents, warrants and agrees that it and each of its affiliates will not offer or sell the Securities in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Each Purchaser severally agrees, with respect to resales made in reliance on Rule 144A of any of the Securities, to deliver either with the confirmation of such resale or otherwise prior to the 6 settlement of such resale a notice to the effect that the resale of such Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. 5. Certain Agreements of the Company. The Company agrees with the Purchasers that: (a) The Company will advise CSFBC promptly of any proposal to amend or supplement the Offering Document and will not effect such amendment or supplementation without CSFBC's consent, which consent shall not be unreasonably withheld. If, at any time prior to the completion of the resale of the Securities by the Purchasers, any event occurs as a result of which the Offering Document as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Company promptly will notify CSFBC of such event and promptly will prepare, at its own expense, an amendment or supplement which will correct such statement or omission. Neither CSFBC's consent to, nor the Purchasers' delivery to offerees or investors of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. (b) The Company will furnish to CSFBC copies of any preliminary offering circular, the Offering Document and all amendments and supplements to such documents, in each case as soon as available and in such quantities as CSFBC requests, and the Company will furnish to CSFBC on the date hereof three copies of the Offering Document signed by a duly authorized officer of the Company, one of which will include the independent accountants' reports therein manually signed by such independent accountants. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish or cause to be furnished to CSFBC (and, upon request, to Furman Selz LLC) and, upon request of holders and prospective purchasers of the Securities, to such holders and purchasers, a reasonable number of copies of the information required to be delivered to holders and prospective purchasers of the Securities pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of the Securities. The Company will pay the expenses of printing and distributing to the Purchasers all such documents. (c) The Company will arrange, in cooperation with the Purchasers, for the qualification of the Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions in the United States and Canada as CSFBC designates and will continue such qualifications in effect so long as required for the resale of the Securities by the Purchasers; provided that neither the Company nor any Subsidiary Guarantor will be required - -------- to qualify as a foreign corporation or to file a general consent to service of process in any such jurisdiction. (d) During the period of five years hereafter, the Company will furnish to the Purchasers, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to CSFBC and, upon request, to Furman Selz LLC (i) as soon as available, a copy of each report or other publicly available information mailed by the Company to holders of the Securities, and (ii) from time to time, such other information concerning the Company as CSFBC may reasonably request. (e) During the period of two years after the Closing Date, the Company will, upon request, furnish to any Purchaser and any holder of Securities a copy of the restrictions on transfer applicable to the Securities. (f) During the period of two years after the Closing Date, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Securities that have been reacquired by any of them, provided that this clause shall not apply to the ------------- Exchange Notes issued in accordance with the Exchange Offer contemplated by Registration Rights Agreement (each as defined in the Registration Rights Agreement), and provided further that if at any time any Purchaser becomes an ---------------- affiliate as defined in Rule 144 under the Securities Act, then this clause (f) shall not apply with respect to such Purchaser. 7 (g) During the period of two years after Closing Date, the Company will not be or become, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act, and is not, and will not be or become, a closed-end investment company required to be registered, but not registered, under the Investment Company Act . (h) The Company will pay all expenses incidental to the performance of its obligations under this Agreement and the Indenture, including (i) the fees and expenses of the Trustee and its professional advisers; (ii) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of the Securities, the preparation and printing of this Agreement, the Securities, the Indenture, the Offering Document and amendments and supplements thereto, and any other document relating to the issuance, offer, sale and delivery of the Securities; (iii) the cost of qualifying the Securities for trading in the Private Offerings, Resale and Trading through Automated Linkages (PORTAL) Market and any expenses incidental thereto; (iv) the cost of any advertising approved by the Company in connection with the issue of the Securities; (v) for any expenses (including fees and disbursements of counsel) in connection with qualification of the Securities for sale under the laws of such jurisdictions in the United States and Canada as CSFBC designates and the printing of memoranda relating thereto; (vi) for any fees charged by investment rating agencies for the rating of the Securities; and (vii) for expenses incurred in distributing preliminary offering circulars and the Offering Document (including any amendments and supplements thereto) to the Purchasers. The Company will also pay or reimburse the Purchasers (to the extent incurred by them) for all lodging and air travel expenses of the Company's officers and employees and all chartered air travel of the Purchasers and the Company's officers and employees. The Purchasers shall bear all other expenses not referred to above including the cost of their legal expenses (other than those legal expenses referred to in clause (v).) (i) In connection with the offering, until CSFBC shall have notified the Company and Furman Selz LLC of the completion of the resale of the Securities, neither the Company nor any of its affiliates has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Securities or attempt to induce any person to purchase any Securities; and neither it nor any of its affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Securities. (j) The Company will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement relating to debt securities issued or guaranteed by the Company and having a maturity of more than one year from the date of issue, or publicly disclose the intention to make such offer, sale, pledge, disposition or filing, without prior written consent of CSFBC for a period beginning at the date of this Agreement and ending at the later of the Closing Date or the lifting of trading restrictions by the Purchasers. 6. Conditions of the Obligations of the Purchasers. The obligations of the Purchasers to purchase and pay for the Securities will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Purchasers shall have received a letter, dated the date of this Agreement, of Coopers & Lybrand L.L.P. in form and substance satisfactory to the Purchasers concerning certain financial information with respect to the Company set forth in the Offering Document and, to the extent covered in such letter, the Additional Issuer Information. (b) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) a change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls that would, in the judgment of CSFBC, be likely to prejudice materially the success of the proposed issue, sale or distribution of the Securities, whether in the primary market or in respect of dealings in the 8 secondary market, or (ii) (A) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company or its subsidiaries which, in the judgment of CSFBC, is material and adverse and makes it impractical or inadvisable to proceed with completion of the offering or the sale of and payment for the Securities; (B) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (C) any suspension or limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the- counter market; (D) any banking moratorium declared by U.S. Federal or New York authorities; or (E) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Purchasers including CSFBC, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the offering or sale of and payment for the Securities. (c) The Purchasers shall have received an opinion, dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Company and the Subsidiary Guarantors to the effect that: (i) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, and has the corporate power and corporate authority to own its properties and to conduct its business as described in the Offering Memorandum. (ii) Each of the Subsidiary Guarantors has been duly incorporated and is an existing corporation in good standing under the laws of its state of incorporation, and has the corporate power and corporate authority to own its properties and to conduct its business as described in the Offering Memorandum. (iii) The Indenture has been duly authorized , executed and delivered by the Company and each of the Subsidiary Guarantors, and, assuming due authorization, execution and delivery by the Trustee, will constitute a valid and binding obligation of the Company and each Subsidiary Guarantor, en forceable in accordance with its terms, except to the extent that enforcement thereof may be limited by (a) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (iv) The Notes have been duly authorized and conform in all material respects to the description thereof contained in the Offering Memorandum, and when executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement will constitute valid and binding obligations of the Company, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by (a) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (v) The Guarantees have been duly authorized by each Subsidiary Guarantor and con form in all material respects to the description thereof in the Offering Memorandum and will constitute valid and binding obligations of each Subsidiary Guarantor, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by (a) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). 9 (vi) All the outstanding shares of capital stock of the Company issued in connection with the recapitalization of the Company effective February 14, 1997 pursuant to a Stock Purchase and Sale Agreement, dated as of December 23, 1996, among the Company and the other parties thereto and the reclassification of the Company's capital stock effective March 31, 1997 have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive rights under the Company's Certificate of Incorporation, any applicable laws, or agreement or instrument listed on Schedule A to such opinion. (vii) Each of this Agreement and the Registration Agreement has been duly authorized, executed and delivered by the Company and each Subsidiary Guarantor. (viii) None of the Company or the Subsidiary Guarantors is and, after giving effect to the offering and sale of the Notes and the application of the proceeds therefrom as described in the Offering Memorandum, will be an "investment company" as defined in the Investment Company Act of 1940. (ix) It is not necessary in connection with the offer, sale and delivery of the Notes by the Company to the Initial Purchasers pursuant to this Agreement or the initial resale of such Notes by the Initial Purchasers in the manner contemplated by this Agreement, to register the Notes under the Securities Act or to qualify the Indenture under the Trust Indenture Act, it being understood that such opinion shall be based on certain assumptions set forth therein and that such counsel will express no opinion as to any subsequent resale of the Notes. (x) No Governmental Approval is required for the execution and delivery of this Agreement, the Registration Agreement, the Indenture, the Guarantees or the Notes, and the consummation of the transactions contemplated hereby and thereby, including the issuance or sale of the Notes by the Company, except such as may be required under state securities laws. (xi) The execution and delivery and performance by the Company and the Subsidiary Guarantors of this Agreement and the Indenture, and the issuance and sale of the Notes and the Guarantees and compliance with the terms and provisions thereof will not result in a breach or violation of any terms and provisions of, or constitute a default under, (a) any applicable law or any order, injunction or decree of any governmental agency or body or any court having jurisdiction over the Company or any subsidiary of the Company or any of their properties, which have been identified to such counsel by the Company and listed on Schedule B to such opinion, (b) the agreements and instruments provided to such counsel by the Company and set forth on Schedule A to such opinion (except for breaches and violations of the foregoing which will not have a material adverse effect on the Company and its subsidiaries taken as a whole); provided, however, such counsel will express no opinion with respect to any financial ratio or other financial tests contained therein, or (c) the Certificate of Incorporation or By-laws of the Company or any such subsidiary. The Company has the corporate power and corporate authority to authorize, issue and sell the Notes as contemplated in this Agreement and each Subsidiary Guarantor has the corporate power and corporate authority to authorize and issue its Guarantee as contemplated by this Agreement. (xii) To such counsel's knowledge, except as described in the Offering Memorandum, there are no legal or governmental actions, suits or proceedings pending or threatened to which the Company or any Subsidiary Guarantor is a party or to which any of their respective property is subject which would be required to be described in the Offering Memorandum if it were a prospectus included in a registration statement on Form S-1 under the Securities Act. (xiii) The descriptions in the Offering Memorandum of statutes, legal and governmental proceedings, contracts and other documents, insofar as such descriptions constitute a summary of such statutes, legal and governmental proceedings, contracts and other documents referred to therein, fairly present the information called for with respect to such information in all material respects. 10 (xiv) Such counsel has no reason to believe that the Offering Document, or any amendment or supplement thereto, as of the date thereof and as of the Closing Date, contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading, it being understood that such counsel is not passing upon, and does not assume and responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Document and have made no independent check or verification thereof (except as to matters referred to in clause (xiii)); it being understood that such counsel need express no opinion as to the financial statements, or other financial, statistical or accounting data included in, or excluded from, the Offering Document. (d) The Purchasers shall have received from O'Melveny & Myers LLP, counsel for the Purchasers, such opinion or opinions, dated the Closing Date, with respect to the incorporation of the Company, the validity of the Securities, the Offering Document, the exemption from registration for the offer and sale of the Securities by the Company to the Purchasers and the resales by the Purchasers as contemplated hereby and other related matters as CSFBC may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (e) The Purchasers shall have received a certificate, dated the Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company and each Subsidiary Guarantor in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company in this Agreement are true and correct, that the Company and each Subsidiary Guarantor has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date, and, with respect to the Company's certificate, that, subsequent to the date of the most recent financial statements in the Offering Document there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole except as set forth in or contemplated by the Offering Document or as described in such certificate. (f) The Purchasers shall have received a letter, dated the Closing Date, of Coopers & Lybrand L.L.P. which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three business days prior to the Closing Date for the purposes of this subsection. The Company will furnish the Purchasers with such conformed copies of such opinions, certificates, letters and documents as the Purchasers reasonably request. CSFBC may in its sole discretion waive on behalf of the Purchasers compliance with any conditions to the obligations of the Purchasers hereunder. 7. Indemnification and Contribution. (a) The Company and each Subsidiary Guarantor, jointly and severally, will indemnify and hold harmless each Purchaser against any losses, claims, damages or liabilities, joint or several, to which such Purchaser may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related preliminary offering circular necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse each Purchaser for any legal or other expenses reasonably incurred by such Purchaser in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company and each of the -------- ------- Subsidiary Guarantors will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company or any Subsidiary Guarantor by any Purchaser through CSFBC, specifically for use therein, it being understood and agreed that the only such information consists of the information described as such in subsection (b) 11 below; and provided further, however, that with respect to any untrue statement -------- ------- ------- or omission or alleged untrue statement or omission made in any preliminary offering circular, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Purchaser that sold the Securities concerned to the person asserting any such losses, claims, damages or liabilities, to the extent that such sale was an initial resale by such Purchaser and any such loss, claim, damage or liability of such Purchaser results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the Offering Document (exclusive of any material included therein but not attached thereto) if the Company had previously furnished copies thereof to such Purchaser and such copies corrected such misstatement or omission. (b) Each Purchaser will severally and not jointly indemnify and hold harmless the Company and each Subsidiary Guarantor against any losses, claims, damages or liabilities to which the Company or any Subsidiary Guarantor may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related preliminary offering circular, or arise out of or are based upon the omission or the alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Purchaser through CSFBC specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company and the Subsidiary Guarantors in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by either Purchaser consists of (i) the following information in the Offering Document furnished on behalf of each Purchaser: the last paragraph at the bottom of the cover page concerning the terms of the offering by the Purchasers, the legend concerning over- allotments and stabilizing on the inside front cover page and fifth paragraph, and the third sentence of the seventh paragraph, and the ninth paragraph, all under the caption "Plan of Distribution". (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Subsidiary Guarantors on the one hand and the Purchasers on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Subsidiary Guarantors on the one hand and the Purchasers on the other 12 in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Purchasers from the Company under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Subsidiary Guarantors or the Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities purchased by it were resold exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Purchasers' obligations in this subsection (d) to contribute are several in proportion to their respective purchase obligations and not joint. (e) The obligations of the Company and the Subsidiary Guarantors under this Section shall be in addition to any liability which the Company and the Subsidiary Guarantors may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls either Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Purchasers under this Section shall be in addition to any liability which the respective Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act. 8. Default of Purchasers. If any Purchaser or Purchasers default in their obligations to purchase Securities hereunder and the aggregate principal amount of Securities that such defaulting Purchaser or Purchasers agreed but failed to purchase does not exceed 10% of the total principal amount of Securities, CSFBC may make arrangements satisfactory to the Company for the purchase of such Securities by other persons, including any of the Purchasers, but if no such arrangements are made by the Closing Date, the non-defaulting Purchasers shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Securities that such defaulting Purchasers agreed but failed to purchase. If any Purchaser or Purchasers so default and the aggregate principal amount of Securities with respect to which such default or defaults occur exceeds 10% of the total principal amount of Securities and arrangements satisfactory to CSFBC and the Company for the purchase of such Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Purchaser or the Company, except as provided in Section 9. As used in this Agreement, the term "Purchaser" includes any person substituted for a Purchaser under this Section. Nothing herein will relieve a defaulting Purchaser from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers, the Subsidiary Guarantors or their respective officers and of the Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of either Purchaser, the Company, the Subsidiary Guarantors or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Securities by the Purchasers is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company, the Subsidiary Guarantors and the Purchasers pursuant to Section 7 shall remain in effect. If the purchase of the Securities by the Purchasers is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in clause (C), (D) or (E) of Section 6(b)(ii), the Company will reimburse the Purchasers for all 13 out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Securities. 10. Notices. All communications hereunder will be in writing and, if sent to the Purchasers will be mailed, delivered or telegraphed and confirmed to the Purchasers, c/o Credit Suisse First Boston Corporation, 11 Madison Avenue, New York, NY 10010, Attention: Investment Banking Department-- Transactions Advisory Group, or, if sent to the Company or any Subsidiary Guarantor, will be mailed, delivered or telegraphed and confirmed to it at 4232 Temple City Boulevard, P.O. Box 739, Rosemead, CA 91770-1592, Attention: Andrew Goldfarb, Chief Executive Officer; provided, however, that any notice to a Purchaser pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Purchaser. 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder, except that holders of Securities shall be entitled to enforce the agreements for their benefit contained in the second and third sentences of Section 5(b) hereof against the Company as if such holders were parties thereto. 12. Representation of Purchasers. CSFB will act for the Purchasers in connection with this purchase, and any action under this Agreement taken by CSFBC will be binding upon all the Purchasers. 13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. The Company and each Subsidiary Guarantor hereby submits to the non- exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 14 If the foregoing is in accordance with the Purchasers' understanding of our agreement, kindly sign and return to us one of the counterparts hereof, whereupon it will become a binding agreement between the Company, the Subsidiary Guarantors and the Purchasers in accordance with its terms. Very truly yours, HCC Industries Inc. By ___________________________________ Andrew Goldfarb Chief Executive Officer Hermetic Seal Corporation By ___________________________________ Glasseal Products, Inc. By ____________________________________ Sealtron, Inc. By ____________________________________ Sealtron Acquisition Corp. By ____________________________________ HCC Industries International By ____________________________________ S-1 The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. Credit Suisse First Boston Corporation Furman Selz LLC By Credit Suisse First Boston Corporation By ___________________________________ S-2 SCHEDULE A
PURCHASER PRINCIPAL AMOUNT OF - --------- SECURITIES -------------------- Credit Suisse First Boston Corporation $76,500,000 Furman Selz LLC......................... $13,500,000 Total $90,000,000 =========== A-1
SCHEDULE B List of Documents Delivered with Offering Circular None B-1 SCHEDULE C FORM OF LETTER TO BE DELIVERED BY INSTITUTIONAL ACCREDITED INVESTORS -------------------------------------------------------------------- HCC Industries Inc. c/o IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attention: Corporate Finance Trust Services Credit Suisse First Boston Corporation Furman Selz LLC as Initial Purchasers c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010 Dear Sirs: We are delivering this letter in connection with an offering of $90,000,000 principal amount of 10 3/4% Senior Subordinated Notes due 2007 (the "Securities") of HCC Industries Inc., a Delaware corporation (the "Company"), all as described in the Offering Circular (the "Offering Circular") relating to the offering. We hereby confirm that: (i) we are an "accredited investor" within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act of 1933, as amended (the "Securities Act"), or an entity in which all of the equity owners are accredited investors within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act (an "Institutional Accredited Investor"); (ii) (A) any purchase of the Securities by us will be for our own account or for the account of one or more other Institutional Accredited Investors or a fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of Rule 501(a)(7) under the Securities Act and for each of which we exercise sole investment discretion or (B) we are a "bank", within the meaning of Section 3(a)(2) of the Securities Act, or a "savings and loan association" or other institution described in Section 3(a)(5)(A) of the Securities Act, that is acquiring the Securities as fiduciary for the account of one or more institutions for which we exercise sole investment discretion; (iii) in the event that we purchase any of the Securities, we will acquire Securities having a minimum purchase price of not less than $250,000 for our own account or for any separate account for which we are acting; (iv) we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing the Securities; (v) we are not acquiring the Securities with a view to distribution thereof or with any present intention of offering or selling any of the Securities, except inside the United States in accordance with Rule 144A under the Securities Act or outside the United States in accordance with Regulation S under the Securities Act, as provided below; provided that the disposition of our property and the property of any accounts for which we are acting as fiduciary shall remain at all times within our control; and (vi) we have received a copy of the Offering Circular relating to the offering of the Securities and acknowledge that we have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase the Securities; and (vii) we are not an "affiliate" (as defined in Rule 144 under the Securities Act) of the Company or acting on behalf of an affiliate of the Company. We understand that the Securities are being offered in a transaction not involving any public offering within the United States within the meaning of the Securities Act and that the Securities have not been and will not be registered under the Securities Act, and we agree, on our own behalf and on behalf of each account for which we acquire any Securities, that if in the future we decided to resell, pledge or otherwise transfer such Securities, such Securities may be offered, resold, pledged or otherwise transferred only (i) inside the United States to a person whom we reasonably believe is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, (ii) in a transaction meeting the requirements of Rule 904 under the Securities Act; (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available); or (iv) pursuant to an effective registration statement under the Securities Act, in each of cases (i) through (iv) above, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction. We agree to notify any Purchaser, pledgee or transferee of such Securities of the restrictions referred to in clauses (i) through (iv) above. We understand that the registrar and transfer agent for the Securities will not be required to accept for registration of transfer any Securities acquired by us, except upon presentation of evidence satisfactory to the Company and the transfer agent that the foregoing restrictions on transfer have been complied with. We further understand that any Securities acquired by us will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of this paragraph. We acknowledge that you, the Company and others will rely upon our confirmation, acknowledgments and agreements set forth herein, and we agree to notify you promptly if any of our representations or warranties herein ceases to be accurate and complete. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. Date: ________________________ _________________________________ (Name of Purchaser) By: __________________________ Name: Title: Address: C-2 EX-12.1 20 STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.1 HCC INDUSTRIES INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Thousands)
Pro Forma April 3, April 2, April 1, March 30, March 29, March 29, 1993 1994 1995 1996 1997 1997 ------ ------ ------ ------- ------ --------- Earnings: Income (loss) before income taxes $1,403 $2,594 $5,662 $ 8,893 $ (821) $ 6,006 Add: Fixed charges* 1,985 1,893 1,715 1,924 2,946 10,707 ------ ------ ------ ------- ------ ------- $3,388 $4,487 $7,377 $10,817 $2,125 $16,713 ====== ====== ====== ======= ====== ======= *Fixed Charges Interest Expense(1) $1,958 $1,850 $1,692 $1,898 $2,702 $10,212 Amortization of debt issuance costs 27 43 23 26 244 495 ------ ------ ------ ------ ------ ------- $1,985 $1,893 $1,715 $1,924 $2,946 $10,707 ====== ====== ====== ====== ====== ======= Ratio of Earnings to Fixed Charges 1.7 2.4 4.3 5.6 - (2) 1.6 ====== ====== ====== ======= ====== =======
(1) Interest expense includes the interest portion of capitalized lease obligations for each of the periods shown. (2) The Company's earnings were insufficient to cover interest expense and fixed charges for the fiscal year ended March 29, 1997. The dollar amount of the deficiency was $821,000. EX-21.1 21 SUBSIDIARIES OF THE COMPANY HCC INDUSTRIES INC. EXHIBIT 21.1 LIST OF REGISTRANT YEAR STATE OF SUBSIDIARIES INCORPORATED INCORPORATION - ------------------------------------------------------------------------------- Hermetic Seal Corporation 1994 Delaware Glasseal Products, Inc. 1970 New Jersey Sealtron Acquisition Corp. 1986 Delaware Sealtron, Inc. 1986 Delaware HCC Industries International 1985 California EX-23.1 22 CONSENT OF COOPERS & LYBRAND Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 of our report dated May 30, 1997 (except for Note 11, as to which the date is June 20, 1997), on our audits of the consolidated financial statements and financial statement schedule of HCC Industries Inc. We also consent to the reference to our firm under the caption "Experts". Coopers & Lybrand L.L.P. Los Angeles, CA July 24, 1997 EX-25.1 23 STATEMENT OF ELIG + QUALIFICATION ON FORM T-1 EXHIBIT 25.1 ______________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 -------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)__ --------------------- IBJ SCHRODER BANK & TRUST COMPANY (Exact name of trustee as specified in its charter) New York 13-5375195 (Jurisdiction of incorporation (I.R.S. Employer or organization if not a U.S. national bank) Identification No.) One State Street, New York, New York 10004 (Address of principal executive offices) (Zip code) IBJ SCHRODER BANK & TRUST COMPANY One State Street New York, New York 10004 (212) 858-2000 (Name, address and telephone number of agent for service) HCC INDUSTRIES INC. (Exact name of obligor as specified in its charter) Delaware 95-2691666 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4232 Temple City Boulevard P.O. Box 739 Rosemead, CA 91770-1592 (Address of principal executive offices) (Zip code) -------------------- 10-3/4% SENIOR SUBORDINATED EXCHANGE NOTES DUE 2007 (Title of indenture securities) ______________________________________________________ Item 1. General information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department Two Rector Street, New York, New York Federal Deposit Insurance Corporation Washington, D.C. Federal Reserve Bank of New York Second District 33 Liberty Street New York, New York (b) Whether it is authorized to exercise corporate trust powers. Yes Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. The obligor is not an affiliate of the trustee. Defaults by the Obligor. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. None (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. None Item 13. Defaults by the Obligor. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. None (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. Not Applicable Item 16. LIST OF EXHIBITS. List below all exhibits filed as part of this statement of eligibility. *1. A copy of the Charter of IBJ Schroder Bank & Trust Company as amended to date. (See Exhibit 1A to Form T-1, Securities and Exchange Commission File No. 22-18460). *2. A copy of the Certificate of Authority of the trustee to Commence Business (Included in Exhibit 1 above). *3. A copy of the Authorization of the trustee to exercise corporate trust powers, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22- 19146). *4. A copy of the existing By-Laws of the trustee, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-19146). 5. Not Applicable 6. The consent of United States institutional trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. * The Exhibits thus designated are incorporated herein by reference as exhibits hereto. Following the description of such Exhibits is a reference to the copy of the Exhibit heretofore filed with the Securities and Exchange Commission, to which there have been no amendments or changes. NOTE ---- In answering any item in this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor and its directors or officers, the trustee has relied upon information furnished to it by the obligor. Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base responsive answers to Item 2, the answer to said Item are based on incomplete information. Item 2, may, however, be considered as correct unless amended by an amendment to this Form T-1. Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and 16 of this form since to the best knowledge of the trustee, the obligor is not in default under any indenture under which the applicant is trustee. SIGNATURE --------- Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 24th day of July, 1997. IBJ SCHRODER BANK & TRUST COMPANY By: /s/ Barbara McCluskey ---------------------------- Barbara McCluskey Vice President EXHIBIT 6 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the issue by HCC Industries Inc. of its 10-3/4% Senior Subordinated Exchange Notes due 2007, we hereby consent that reports of examinations by Federal, State, Territorial, or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. IBJ SCHRODER BANK & TRUST COMPANY By: /s/ Barbara McCluskey ----------------------------- Barbara McCluskey Vice President Dated: July 24, 1997 EXHIBIT 7 CONSOLIDATED REPORT OF CONDITION OF IBJ SCHRODER BANK & TRUST COMPANY OF NEW YORK, NEW YORK AND FOREIGN AND DOMESTIC SUBSIDIARIES REPORT AS OF MARCH 31, 1997
DOLLAR AMOUNTS IN THOUSANDS -------------- ASSETS ------ Cash and balance due from depository institutions: Noninterest-bearing balances and currency and coin.......................................................... $ 37,521 Interest-bearing balances..................................... $ 325,073 Securities: Held-to-maturity securities.......................... $ 177,447 Available-for-sale securities........................ $ 47,358 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries and in IBFs: Federal Funds sold and Securities purchased under agreements to resell.................................... $ 75,273 Loans and lease financing receivables: Loans and leases, net of unearned income.......... $1,820,213 LESS: Allowance for loan and lease losses......... $ 58,785 LESS: Allocated transfer risk reserve............. $ -0- Loans and leases, net of unearned income, allowance, and reserve........................................ $1,761,428 Trading assets held in trading accounts........................... $ 602 Premises and fixed assets (including capitalized leases)........................................................... $ 3,817 Other real estate owned........................................... $ 202 Investments in unconsolidated subsidiaries and associated companies.............................................. $ -0- Customers' liability to this bank on acceptances outstanding....................................................... $ 310 Intangible assets................................................. $ -0- Other assets...................................................... $ 74,528 TOTAL ASSETS...................................................... $2,503,559
LIABILITIES ----------- Deposits: In domestic offices........................................... $ 792,944 Noninterest-bearing........................... $ 260,196 Interest-bearing.............................. $ 394,562 In foreign offices, Edge and Agreement subsidiaries, and IBFs........................................ $1,149,176 Noninterest-bearing........................... $ 13,875 Interest-bearing.............................. $1,135,301 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal Funds purchased and Securities sold under agreements to repurchase...................................... $ 344,500 Demand notes issued to the U.S. Treasury.......................... $ 30,000 Trading Liabilities............................................... $ 178 Other borrowed money: a) With a remaining maturity of one year or less.............. $ 23,037 b) With a remaining maturity of more than one year............ $ 4,958 Mortgage indebtedness and obligations under capitalized leases................................................ $ -0- Bank's liability on acceptances executed and outstanding.......... $ 310 Subordinated notes and debentures................................. $ -0- Other liabilities................................................. $ 71,245 TOTAL LIABILITIES................................................. $2,278,162 Limited-life preferred stock and related surplus.................. $ -0- EQUITY CAPITAL Perpetual preferred stock and related surplus..................... $ -0- Common stock...................................................... $ 29,649 Surplus (exclude all surplus related to preferred stock).......... $ 217,008 Undivided profits and capital reserves............................ $ (21,223) Net unrealized gains (losses) on available-for-sale securities.... $ 37 Cumulative foreign currency translation adjustments............... $ -0- TOTAL EQUITY CAPITAL.............................................. $ 225,397 TOTAL LIABILITIES AND EQUITY CAPITAL.............................. $2,503,559
EX-27.1 24 FINANCIAL DATA SCHEDULE
5 0000316884 HCC INDUSTRIES INC. 1,000 12-MOS MAR-29-1997 MAR-31-1996 MAR-29-1997 6,841 0 6,904 40 4,376 88,159 17,980 5,716 116,141 80,565 0 0 0 14 (53,354) 116,141 56,683 56,683 35,729 35,729 9,308 0 2,946 (821) (293) (528) 0 (1,186) 0 (1,714) (4.75) (4.75)
-----END PRIVACY-ENHANCED MESSAGE-----