U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 0-11676
BEL FUSE INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1463699
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
206 Van Vorst Street, Jersey City, New Jersey 07302
(201) 432-0463
(Address and telephone number, including area code, of registrant's
principal executive office)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, $.10 par value; Class B Common Stock, $.10 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934) Yes X No
--- ---
The aggregate market value of the voting and non-voting common equity
of the registrant held by non-affiliates (for this purpose, persons and entities
other than executive officers, directors, and 5% or more shareholders) of the
registrant, as of the last business day of the registrant's most recently
completed second fiscal quarter (June 30, 2002), was $225,135,000.
Number of shares of Common Stock outstanding as of February 28, 2003:
2,676,225 Class A Common Stock; 8,272,492 Class B Common Stock
Documents incorporated by reference:
Bel Fuse Inc.'s Definitive Proxy Statement for the 2003 Annual Meeting
of Stockholders is incorporated by reference into Part III.
BEL FUSE INC.
INDEX
Part I Page
- ------ ----
Item 1. Business............................................. 1
Item 2. Properties........................................... 6
Item 3. Legal Proceedings.................................... 6
Item 4. Submission of Matters to a Vote of Security
Holders.............................................. 6
Item 4A. Executive Officers of the Registrant................. 7
Part II
- -------
Item 5. Market for Registrant's Common Equity
And Related Stockholder Matters...................... 9
Item 6. Selected Financial Data.............................. 10
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operation............................................ 11
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.................................... 21
Item 8. Financial Statements and Supplementary
Data................................................. 21*
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............... 22
Part III
- --------
Item 10. Directors and Executive Officers
of the Registrant.................................... 22
Item 11. Executive Compensation............................... 22
Item 12. Security Ownership of Certain
Beneficial Owners and Management..................... 22
Item 13. Certain Relationships and Related
Transactions......................................... 22
Part IV
- -------
Item 14. Controls and Procedures............................. 23
Item 15. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.............................. 24
Signatures............................................................. 27
*Page F-1 follows page 21
FORWARD LOOKING INFORMATION
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely affect revenues and
profitability, including the following: (a) the dramatic impact of current
conditions in the telecommunication market on the Company's customers; (b) the
general conditions in the electronics industry; (c) the risk that the Company
may be unable to respond adequately to rapidly changing technology developments
in its industry; (d) risks associated with the Company's Far East operations;
(e) the highly competitive nature of the Company's industry and the impact that
competitors' new products and pricing may have upon the Company; (f) the
likelihood that revenues may vary significantly from one accounting period to
another accounting period due to a variety of factors, including customers'
buying decisions, the Company's product mix and general market and economic
conditions; (g) the Company's reliance on certain substantial customers; (h)
risks associated with the Company's ability to manufacture and deliver products
in a manner that is responsive to its customers' needs; (i) the risk of foreign
currency fluctuations; (j) the uncertainties associated with current
geo-political conditions and (k) other market and competitive factors impacting
the Company's customers. As a result of these and other factors, the Company may
experience material fluctuations in future operating results on a quarterly or
annual basis, which could materially and adversely affect its business,
financial condition, operating results, and stock prices. Furthermore, this
document and other documents filed by the Company with the Securities and
Exchange Commission (the "SEC") contain certain Forward-Looking Statements under
the Private Securities Litigation Reform Act of 1995 ("Forward-Looking
Statements") with respect to the business of the Company. These Forward-Looking
Statements are subject to certain risks and uncertainties, including those
mentioned above, and those detailed in Item 1 of the Company's Annual Report on
Form 10-K for the year ended December 31, 2002, which could cause actual results
to differ materially from its Forward-Looking Statements. The Company undertakes
no obligation to publicly release the results of any revisions to these
Forward-Looking Statements which may be necessary to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. An investment in the Company involves various risks,
including those mentioned above and those which are detailed from time to time
in the Company's SEC filings.
PART I
Item 1. Business
--------
General
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Bel Fuse Inc. (the "Company") is organized under New Jersey law. The
Company does not have reportable segments as defined in Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information". The Company is engaged in the design, manufacture and sale
of products used in networking, telecommunication, automotive and consumer
electronic applications. The Company operates facilities in the United States,
Europe and the Far East. The Company maintains its principal executive offices
at 206 Van Vorst Street, Jersey City, New Jersey 07302; telephone (201)
432-0463. The term "Company" as used in this Annual Report on Form 10-K refers
to Bel Fuse Inc. and its consolidated subsidiaries unless otherwise specified.
1
On December 15, 2002 the Company entered into a definitive agreement
with Insilco Technologies, Inc. ("Insilco") for the purchase by the Company of
certain assets, subject to certain liabilities, and common shares of entities
comprising Insilco's passive component group for $35 million in cash plus the
assumption of certain liablilities. On March 10, 2003 the Bankruptcy Court
entered an order approving this agreement. This approval order authorizes
Insilco to consummate the sale of assets and common shares of various entities
of Insilco to the Company, subject to certain assumed liabilities and free and
clear of all encumbrances on Insilco's U.S. operations. The Company closed on
this acquisition on March 21, 2003.
On January 2, 2003 the Company entered into an asset purchase agreement
with Advanced Power Components PLC ("APC") to purchase the communications
products division of APC for $5.5 million in cash plus the assumption of
certain liabilities. The Company will be required to make contingent purchase
price payments equal to 5% of sales (as defined) in excess of $5.5 million per
year for the years 2003 and 2004.
The transactions will be accounted for using the purchase method of
accounting and, accordingly, the results of operations of Insilco will be
included in the Company's financial statements from March 21, 2003 and the
results of operations of APC will be included in the Company's financial
statements from January 2, 2003.
On May 11, 2001, the Company acquired 100% of the common stock of
E-Power Ltd. ("E-Power") and the assets and business of Current Concepts, Inc.
("Current Concepts") for an aggregate $6,285,000 in cash (including acquisition
expenses). The Company will be required to make contingent purchase price
payments up to approximately $7.6 million should the acquired companies reach
various sales levels. During the year ended December 31, 2002 the Company paid
$61,000 in contingent purchase price payments. The transactions were accounted
for using the purchase method of accounting and, accordingly, the results of
operations of Current Concepts and E-Power have been included in the Company's
financial statements since the date of acquisition. The excess of the purchase
price over net assets acquired ($2.0 million) and other identifiable intangible
assets ($3.7 million) approximated $5.7 million. The identifiable intangible
assets, other than goodwill, are being amortized on a straight-line basis over 4
to 10 years. Goodwill has been amortized based on a 15 year life from May 11,
2001 through December 31, 2001. After January 1, 2002, in accordance with the
provisions of Financial Accounting Standards Board Opinion No. 142, the Company
ceased amortization of goodwill and will review goodwill at least annually for
impairment. See Note 1 of notes to consolidated financial statements.
Product Groups
--------------
Power Products
--------------
In 2001, the Company entered into the market for power conversion
products focusing on providing non-isolated DC/DC converters designed
specifically to power low voltage silicon devices. The need for converting one
DC voltage to another is growing rapidly as the developers of integrated
circuits are now commonly adjusting the supply voltage as a means of optimizing
device performance. The Company develops both standard and custom DC/DC
converters. These products leverage the Company's existing manufacturing
capabilities and are marketed primarily to the Company's existing customer base.
2
Magnetic Components
-------------------
The Company manufactures a broad range of magnetic components used in
networking, telecommunications, high speed data transmission equipment,
automotive and consumer products. These wire-wound devices perform such
functions as signal delay, signal timing, signal conditioning, impedance
matching, filtering, isolation, power conversion and power transfer.
Transformers for networking and telecommunication applications are developed
based on market requirements for emerging technologies, often to support an
integrated circuit (IC) design.
Integrated Connector Modules
----------------------------
These modules combine the Company's magnetic components with
combinations of RJ45 and USB connectors. In addition to connectivity, these
modules provide the signal conditioning, electro-magnetic interference
suppression and signal isolation which were previously performed by multiple,
discrete components.
Value-added Modules
-------------------
The Company supplies value-added modules to end users whose
requirements can be satisfied by combining in one integrated package one or more
of the Company's capabilities in surface mount assembly, automatic winding,
hybrid fabrication and component encapsulation.
Miniature, Micro and Chip Fuses
-------------------------------
Fuses prevent currents in an electrical or electronic circuit from
exceeding certain predetermined levels. Fuses act as a safety valve to protect
expensive components from damage or to cut off high currents before they can
generate enough heat to cause smoke or fire. The Company manufactures miniature
and micro fuses for supplementary circuit protection. The Company sells its
fuses to a worldwide market. They are used in such products as televisions,
VCR's, power supplies, computers, telephones and networking equipment.
Marketing
---------
The Company sells its products to approximately 1,000 customers
throughout North America, Western Europe and the Far East. Sales are made
through independent sales representative organizations and authorized
distributors who are overseen by the Company's sales personnel throughout the
world. As of December 31, 2002, the Company had a sales and support staff of 18
persons that supported 59 sales representative organizations and 1 non-exclusive
distributor.
The Company has written agreements with all of its sales representative
organizations and major distributor. Written agreements terminable on short
notice by either party, of the type utilized by the Company, are standard in the
industry.
Finished products manufactured by the Company in its Far East
facilities are, in general, either sold to the Company's Jersey City facility
for resale to customers in the Americas or are shipped directly to other
customers throughout the world. For further information regarding the Company's
geographic operations, see Note 7 of Notes to Consolidated Financial Statements.
The Company had sales to two customers in excess of ten percent of 2002
consolidated sales. The amounts and percentages of the Company's sales were
$11,606,000 (12.1%) and $11,410,000 (11.9%). The loss of either or both of these
customers would have a material adverse effect on the Company's results of
operations, financial position and cash flows.
3
Research and Development
- ------------------------
The Company's research and development efforts in 2002 were spread
among all of the Company's current product groups. The Company's research and
development facilities are located in California, Indiana, Massachusetts, Hong
Kong and China. In addition to its research and development efforts, the Company
maintains continuing programs to improve the reliability of its products and to
design specialized assembly equipment to increase manufacturing efficiencies.
Research and development costs amounted to $6,174,000 in 2002. The Company plans
to close its Indiana facility by June 30, 2003 and closed its Texas facility
during the fourth quarter of 2002. Such closings are not expected to materially
impact the level of the Company's spending on research and development efforts.
The Company purchased property in San Diego, California where its research and
development facility is located. The Company's statement regarding its plans to
close its Indiana facility constitutes a Forward-Looking Statement. Actual
experience could differ materially from such statements for a variety of
factors, including applicable legal and regulatory requirements and other
logistical issues.
Suppliers
- ---------
The Company has multiple suppliers for most of the raw materials that
it purchases. Where possible, the Company has contractual agreements with
suppliers to assure a continuing supply of critical components.
With respect to those items which are purchased from single sources,
the Company believes that comparable items would be available in the event that
there were a termination of the Company's existing business relationships with
any such supplier. While such a termination could produce a disruption in
production, the Company believes that the termination of business with any one
of its suppliers would not have a material adverse effect on its long-term
operations. Actual experience could differ materially from this belief as a
result of a number of factors, including the time required to locate an
alternative source and the nature of the demand for the Company's products. In
the past the Company has experienced shortages in certain raw materials, such as
capacitors and ferrites, when these materials were in great demand. Even though
the Company may have more than one supplier for certain materials, it is
possible that these materials may not be available to the Company in sufficient
quantities or at the times desired by the Company.
Backlog
- -------
The Company manufactures products against firm orders and projected
usage by customers. Cancellation and return arrangements are either negotiated
by the Company on a transactional basis or contractually determined. The
Company's backlog of orders as of February 25, 2003 was approximately $14.3
million, as compared with a backlog of $13.0 million as of February 25, 2002.
Management expects that all of the Company's backlog as of February 25, 2003
will be shipped by December 31, 2003. Such expectation constitutes a
Forward-Looking Statement. Factors that could cause the Company to fail to ship
all such orders by year-end include unanticipated supply difficulties, changes
in customer demand and new customer designs. The Company's major customers have
negotiated shorter lead times on purchase orders and have implemented
consignment inventory programs with the goal of reducing their inventories.
Accordingly, backlog is no longer as reliable an indicator of the timing of
future sales as it has been in the past.
4
Trademarks and Patents
- ----------------------
The Company has been granted a number of U.S. patents and has
additional U.S. patent applications pending relating to its products. While the
Company believes that the issued patents are defendable and that the pending
patent applications relate to patentable inventions, there can be no assurance
that a patent will be obtained from the applications or that its existing
patents can be successfully defended. It is management's opinion that the
successful continuation and operation of the Company's business does not depend
upon the ownership of patents or the granting of pending patent applications,
but upon the innovative skills, technical competence and marketing and
managerial abilities of its personnel. The patents have a life of seventeen
years from the date of issue or twenty years from filing of patent applications.
The Company's existing patents expire on various dates from March 11, 2006 to
February 15, 2021.
The Company utilizes eight U.S. registered trademarks - BELFUSE, BEL,
BELMAG, BELSTACK, BELSTICK, BELCOMBO, SURFUSE and COMPONENTS FOR A CONNECTED
PLANET- to identify various products that it manufactures. The trademarks
survive as long as they are in use and the registrations of these trademarks are
renewed.
Competition
- -----------
The Company's business is highly competitive. There are numerous
independent companies and divisions of major companies which manufacture
products that are competitive with one or more of the Company's products. Some
of the Company's competitors possess greater financial, marketing and other
resources than those available to the Company. The Company's ability to compete
is dependent upon several factors, including product performance, quality,
reliability, design and price.
Employees
- ---------
As of December 31, 2002, the Company had 940 full-time employees. The
Company employed 84 people in its U.S. facilities and 856 throughout the rest of
the world, excluding workers supplied by independent contractors. The Company's
employees are not represented by any labor union. The Company believes that its
relations with employees are satisfactory.
Website Disclosure
- ------------------
The Company makes available free of charge on it website,
www.belfuse.com, all materials that it files electronically with the Securities
and Exchange Commission, including its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports, as soon as reasonably practicable after the Company electronically
files or furnishes such materials to the SEC.
5
Item 2. Properties
----------
The Company currently occupies approximately 689,000 square feet of
manufacturing, warehouse, office, technical and staff quarter space worldwide.
In addition to the Company's principal corporate offices in New Jersey, the
Company maintains facilities in The People's Republic of China and its Special
Administrative Regions ("SAR") of Hong Kong and Macau in the Far East, in
California, Massachusetts and Indiana in the U.S.A. and in the United Kingdom in
Europe. The Company also owns an idle facility of 46,300 square feet in
Illinois. Approximately 33% of the 689,000 square feet the Company occupies is
owned, while the remainder is leased. The Company closed its Texas facility
during the fourth quarter of 2002 and plans to close its Indiana facility by the
end of the second quarter of 2003 and relocate the employees to California. The
statements regarding its plans to close facilities and relocate them constitute
Forward-Looking Statements. Actual experience could differ materially from such
statements for a variety of factors, including applicable legal and regulatory
requirements and other logistical issues. See Note 11 of Notes to Consolidated
Financial Statements for additional information pertaining to leased properties.
Item 3. Legal Proceedings
-----------------
a) The Company commenced an arbitration proceeding before the American
Arbitration Association against Lucent Technologies, Inc. in or about December
2000. The arbitration arises out of an Agreement for the Purchase and Sale of
Assets, dated October 2, 1998 (the "Asset Purchase Agreement"), among Bel Fuse
Inc., Lucent Technologies, Inc. and Lucent Technologies Maquiladores, Inc., and
a related Global Procurement Agreement, dated October 2, 1998 (the "Supply
Agreement"), between Lucent Technologies, Inc., as Buyer, and Bel Fuse Inc., as
Supplier. Pursuant to the Asset Purchase Agreement, the Company purchased
substantially all of the assets of Lucent's signal transformer business.
Pursuant to the Supply Agreement, Lucent agreed that except for limited
instances where Lucent was obligated to purchase product elsewhere, for a term
of 3 1/2 years, Lucent would be obligated, on an as required basis, to purchase
from the Company all of Lucent's requirements for signal transformer products.
The Supply Agreement also provided that the Company would be given the
opportunity to furnish quotations for the sale of other products.
The Company is seeking monetary damages for alleged breaches by Lucent
of the Asset Purchase Agreement and the Supply Agreement. In its answer, Lucent
denied many of the material allegations made by the Company and also asserted
two counterclaims. The counterclaims seek recovery for alleged losses, including
loss of revenue, sustained by Lucent as a result of the Company's alleged breach
of various provisions of the Supply Agreement. The parties are currently engaged
in extensive discovery proceedings. The Company believes it has substantial and
meritorious claims against Lucent and substantial and meritorious defenses to
Lucent's counterclaims. However, the Company cannot predict how the arbitrator
will decide this matter and whether it will have a material effect on the
Company's consolidated financial statements.
b) The Company has received a letter from a third party which states that its
patent covers certain of the Company's modular jack products and indicates the
third party's willingness to grant a non-exclusive license to the Company under
the patent. The Company believes that none of its products are covered by this
particular patent.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of 2002.
6
Item 4A. Executive Officers of the Registrant
------------------------------------
The following table and biographical outlines set forth the positions
and offices within the Company presently held by each executive officer of the
Company and a brief account of the business experience of each such officer for
the past five years.
Positions and Offices
Officer With the Company/
Name and Age Since Business Experience
- ------------ ----- -------------------
Daniel Bernstein, 49 1985 President, Chief Executive
Officer and Director
Robert H. Simandl, 74 1967 Secretary and Director
Colin Dunn, 58 1992 Vice President of Finance and
Treasurer
Joseph Meccariello, 52 1995 Vice President of
Manufacturing
Dennis Ackerman, 40 2001 Vice President of
Operations
Dwayne Vasquez, 40 2001 Vice President of
Sales
Daniel Bernstein has served the Company as President since June 1992.
He previously served as Vice President (1985-1992) and Treasurer (1986-1992) and
has served as a Director since 1986. He has occupied other positions with the
Company since 1978. He was appointed Managing Director of the Company's Macau
subsidiary during 1991.
Robert H. Simandl, a Director and Secretary of the Company since 1967,
is a member of the law firm of Robert H. Simandl, Counselor At Law. He has been
a practicing attorney in New Jersey since 1953.
Colin Dunn joined the Company in 1991 as Finance Manager and in 1992
was named Vice President of Finance and Treasurer. He is currently a director of
Bel Fuse Ltd and Bel Fuse Macau LDA. Prior to joining the Company, Mr. Dunn was
Vice President of Finance and Operations at Kentek Information Systems, Inc.
from 1985 to 1991 and had previously held a series of senior management
positions with Braintech Inc. and Weyerhaeuser Company.
Joseph Meccariello joined the Company in 1979 as a Manager of
Mechanical Engineering and in 1994 became the Deputy Managing Director of the
Company's Hong Kong subsidiary, Bel Fuse, Ltd. In 1995 he was named Vice
President of Manufacturing with responsibility for Far East production
operations.
7
Dennis Ackerman joined the Company in 1986 and has held the positions
of customer service manager, sales manager, purchasing manager and operations
manager. In 2001 he was named Vice President of Operations.
Dwayne Vasquez joined the Company in 2001 as Director of Sales. In
October 2001 he was promoted to Vice President of Sales with responsibility for
the Company's worldwide sales organization. From 1997 to 2001 he was Director of
Sales and Marketing at Ericson Microelectronics, Power Module Division in
Richardson, Texas where he was responsible for driving revenue in the DC/DC and
Board Mounted Power product markets.
8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
(a) Market Information
------------------
On July 9, 1998 the shareholders approved an amendment to the Company's
Certificate of Incorporation authorizing a new voting Class A Common Stock, par
value $.10 per share, and a new non-voting Class B Common Stock, par value $.10
per share ("Class A" and "Class B," respectively), which are traded on the
NASDAQ National Market. The following table sets forth the high and low closing
sales price range (as reported by National Quotation Bureau, Inc.) for the
Common Stock on NASDAQ for each quarter during the past two years.
Class A Class A Class B Class B
High Low High Low
Year Ended December 31, 2001
First Quarter $39.75 $19.75 $39.94 $20.00
Second Quarter 31.75 20.25 33.50 20.57
Third Quarter 30.00 17.55 31.45 18.55
Fourth Quarter 24.25 18.00 26.69 19.25
Year Ended December 31, 2002
First Quarter $26.05 $19.50 $26.80 $21.69
Second Quarter 24.84 22.00 27.80 23.72
Third Quarter 23.50 16.00 27.00 19.44
Fourth Quarter 18.74 14.61 21.85 16.97
The Common Stock is reported under the symbols BELFA and BELFB in the
NASDAQ National Market.
(b) Holders
-------
As of February 28, 2003 there were 138 registered shareholders of the
Company's Class A Common Stock and 152 registered shareholders of the Company's
Class B Common Stock. The Company estimates that there were 1,922 beneficial
shareholders of Class A Common Stock and 4,251 beneficial shareholders of Class
B Common Stock as of February 28, 2003.
(c) Dividends
---------
There are no contractual restrictions on the Company's ability to pay
dividends. On February 1, 2002, May 1, 2002, August 1, 2002, and November 1,
2002 the Company paid a $.05 per share dividend to all shareholders of record of
Class B Common Stock in the total amount of $404,351, $410,199, $410,874, and
$411,299, respectively. On February 1, 2001, May 1, 2001, August 1, 2001 and
November 1, 2001, the Company paid a $.05 per share dividend to all shareholders
of record of Class B Common Stock in the total amount of $399,070, $400,036,
$402,150 and $402,304, respectively. On February 1, 2003 the Company paid a $.05
per share dividend to all shareholders of record at January 13, 2003 of Class B
Common Stock in the total amount of $411,674.
9
Item 6. Selected Financial Data
The Company seeks sales and profit growth by expanding its existing customer base, developing new products and by pursuing strategic acquisitions that meet the Company's criteria relating to the market for the products: the Company's ability to efficiently manufacture the product; synergies that are created by the acquisition; and a purchase price that represents fair value. If the Company's evaluation of a target company misjudges its technology, estimated future sales and profitability levels, or ability to keep pace with the latest technology, these factors could impair the value of the investment, which could materially adversely affect the Company's profitability. The Company files income tax returns in every jurisdiction in which it has reason to believe it is subject to tax. Historically, the Company has been subject to examination by various taxing jurisdictions. To date, none of these examinations has resulted in any material additional tax. Nonetheless, any tax jurisdiction may contend that a filing position claimed by the Company regarding one or more of its transactions is contrary to that jurisdiction's laws or regulations. Results of Operations - --------------------- The following table sets forth, for the past three years, the percentage relationship to net sales of certain items included in the Company's consolidated statements of operations. Percentage of Net Sales ---------------------------------------- Years Ended December 31, ---------------------------------------- 2002 2001 2000 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of sales 75.8 93.3 60.9 Selling, general and administrative expenses 23.3 22.4 16.0 Other income, net of interest expense 1.0 2.5 2.7 Earnings (loss) before income taxes 1.9 (13.2) 25.8 Income tax provision (benefit) 1.3 (0.6) 3.6 Net earnings (loss) 0.6 (12.6) 22.2 Increase (decrease) from Prior Period ---------------------------------------- 2002 compared 2001 compared with 2001 with 2000 -------------- ------------- Net sales (0.5)% (33.9)% Cost of sales (19.2) 1.3 Selling, general and administrative expenses 3.3 (7.4) Net earnings 104.8 (137.8) 12
Sales - ----- Net sales decreased .5% from approximately $96.0 million in 2001 to approximately $95.5 million in 2002. The Company attributes this decrease to the decline in demand affecting the global electronics industry. Although all product lines experienced sales decreases except for integrated connector modules ("ICM"), the telecommunications line was particularly depressed. The Company has experienced price degradation as customers have taken aggressive price positions. Net sales decreased 33.9% from approximately $145.2 million in 2000 to approximately $96.0 million in 2001. The Company attributes this decrease to the decline in demand affecting the global electronics industry. Although all product lines experienced sales decreases except for integrated connector modules ("ICM"), the telecommunications and networking segments were particularly depressed. The Company is experienced both volume reductions and price degradation as the number of manufacturers with saleable products increased and customers took aggressive price positions. Cost of Sales ------------- Cost of sales as a percentage of net sales decreased from 93.3% in 2001 to 75.8% in 2002. The decrease in the cost of sales percentage is primarily attributable to a $14.6 million inventory write-off of surplus and obsolete inventory and non-cancelable purchase commitments during the year ended December 31, 2001 and cost containment measures implemented by the Company that positively affected the year ended December 31, 2002, offset in part by manufacturing inefficiencies due to reduced sales volume and a change in the Company's sales mix. During the year ended December 31, 2002, the Company reduced its reserve for purchase commitments by approximately $1.9 million. This reserve was established during the second quarter of 2001 and was part of the $12.0 million inventory write-off incurred by the Company. Additionally, the Company increased its inventory reserves by approximately $2.6 million for surplus and obsolete inventory during the year ended December 31, 2002. The Company's product mix during the year ended December 31, 2002 contained a relatively significant percentage of products that have a high material content. Such products do not produce margins as high as the Company's traditional products. The Company incurred approximately $.8 million of severance and employee relocation costs during the year ended December 31, 2002. 13
Cost of sales as a percentage of net sales increased from 60.9% in 2000 to 93.3% in 2001. The increase in the cost of sales percentage was primarily attributable to a $14.6 million inventory write-off of surplus and obsolete inventory and estimated losses on non-cancelable purchase commitments. This provision reflected the Company's assessment of then current business levels and its belief that its customers would ultimately seek next generation products when and if a recovery occurs. Additionally, the Company incurred a charge during the fourth quarter of 2001 in the total amount of $5.6 million for the write-down of fixed assets due to changing customer preferences and projected lower volumes in mature product lines and other charges related to the consolidation of the Company's engineering facilities. Also contributing to the increase in cost of sales were manufacturing inefficiencies due to reduced sales volume and sales with lower or no gross profit margins. Selling, General and Administrative Expenses -------------------------------------------- The percentage relationship of selling, general and administrative expenses to net sales increased from 22.4% in 2001 to 23.3% in 2002. Selling, general and administrative expenses increased in dollar amount by approximately 3.3%. The Company attributes the increase in the dollar amount of such expenses primarily to a goodwill impairment charge of approximately $5.2 million offset, in part, by cost containment measures implemented by the Company which included reduced salaries, the elimination of the amortization of goodwill of approximately$791,000 and a decrease in the amortization of other intangibles of approximately $661,000. The percentage relationship of selling, general and administrative expenses to net sales increased from 16.0% in 2000 to 22.4% in 2001. The Company attributes the percentage increase primarily to decreased sales. Selling, general and administrative expenses decreased in dollar amount by approximately 7.4%. The Company attributes the decrease in dollar amount of such expenses to reduced sales and marketing salaries and related expenses, offset in part by a salary continuance of approximately $700,000 due under the terms of the late Chairman of the Board's employment agreement and a charge in the amount of $533,000 related to the modification of the terms of certain non-qualified incentive stock options held by the estate of the Chairman of the Board. The Company's Chairman passed away in July 2001. Additionally, the Company incurred severance costs in the Far East of $460,000. Other Income - net ------------------ Other income, consisting principally of a gain on the sale of marketable securities during 2001 and interest earned on cash and cash equivalents, decreased by approximately $1.5 million during the year 2002 compared to the year 2001 The decrease is due to lower interest rates earned on cash and cash equivalents. Other income, consisting principally of a gain on the sale of marketable securities during 2000 and interest earned on cash and cash equivalents, decreased by approximately $1.5 million during the year 2001 compared to the year 2000. The decrease is due to the $1.0 million gain on the sale of marketable securities during 2000 and lower interest income due to lower interest rates earned on cash and cash equivalents despite higher cash and cash equivalent balances during 2001. 14
Provision for Income Taxes -------------------------- The Company has historically followed a practice of reinvesting a portion of the earnings of foreign subsidiaries in the expansion of its foreign operations. If the unrepatriated earnings were distributed to the parent corporation rather than reinvested in the Far East, such funds would be subject to United States Federal income taxes. Management has identified $21.4 million of foreign earnings that may not be permanently reinvested. Deferred income taxes in the amount of approximately $6.4 million have been provided on such earnings ($.4 million during 2002, $(.1) million during 2001 and $2.1 million during 2000) through December 31, 2002. The Company files income tax returns in every jurisdiction in which it has reason to believe it is subject to tax. Historically, the Company has been subject to examination by various taxing jurisdictions. To date, none of these examinations has resulted in any material additional tax. Nonetheless, any tax jurisdiction may contend that a filing position claimed by the Company regarding one or more of its transactions is contrary to that jurisdiction's laws or regulations. The provision (benefit) for income taxes for 2002 was 1,199,000 as compared to $(547,000) for 2001. The increase in the provision is due primarily to the Company's earnings before income taxes for the year ended December 31, 2002 versus a loss before income taxes for the year ended December 31, 2001. The provision (benefit) for income taxes for 2001 was $(547,000) as compared to $5,159,000 for 2000. The decrease in the provision is due primarily to foreign losses arising from inventory write-downs, United States and foreign losses arising from fixed asset write-offs and severance related expenses in 2001 and lower United States taxes resulting from the gain on the sale of marketable securities in 2000 versus 2001 offset, in part, by pretax profit in 2001 before these charges. The Company's effective tax rate has generally been lower than the statutory United States corporate rate primarily as a result of the lower tax rates in Hong Kong and Macau. Cost Control Measures - --------------------- In light of the current market in the Company's industry, the Company continues to review its operating structures in efforts to control costs. Such measures can be expected to result in a restructuring of the Company's operations and the recognition of related restructuring charges in future periods. The Company incurred severance and employee relocation charges of approximately $.8 million during the year ended December 31, 2002. 15
Inflation - --------- During the past two years, the effect of inflation on the Company's operations was not material. Historically, fluctuations of the U.S. dollar against other major currencies have not significantly affected the Company's foreign operations as most transactions have been denominated in U.S. dollars or currencies linked to the U.S. dollar. Liquidity and Capital Resources - ------------------------------- Historically, the Company has financed its capital expenditures through cash flows from operating activities. Management believes that the cash flow from operations, combined with its existing capital base and the Company's available lines of credit, will be sufficient to fund its operations for the near term. Such statement constitutes a Forward-Looking Statement. Factors which could cause the Company to require additional capital include, among other things, a further softening in the demand for the Company's existing products, an inability to respond to customer demand for new products, potential acquisitions requiring substantial capital, future expansion of the Company's operations and net losses that could result in net cash being used in operating, investing and/or financing activities which result in net decreases in cash and cash equivalents. Net losses may result in the loss of domestic and foreign credit facilities and preclude the Company from raising debt or equity financing in the open markets. The Company has two domestic lines of credit amounting to $11,000,000 which were unused at December 31, 2002. An unsecured $1 million line of credit is renewable annually. The $10 million line of credit expires on March 21, 2006. Borrowings under the $10 million line of credit are secured by a first priority lien on all personal property of Bel Fuse Inc. and its subsidiaries. On March 21, 2003 the Company negotiated an additional $10 million secured term loan. The term loan was used to finance the Company's acquisition of the Passive Components division of Insilco Holdings Company, Inc. The $10 million term loan will fully amortize in 20 equal quarterly installments of principal with a final maturity of March 21, 2008. Interest at 3.75% is payable monthly. The term loan is guaranteed by Bel Fuse Inc. and its domestic subsidiaries. The term loan is collateralized with a first priority lien on 65% of all of the issued and outstanding shares of the capital stock of the foreign subsidiaries of Bel Fuse Inc. and all other personal property of Bel Fuse Inc. The Company's Hong Kong subsidiary has an unsecured line of credit of approximately $2,000,000, which was unused at December 31, 2002. The line of credit expires on December 31, 2003. Borrowing on the line of credit is guaranteed by the U.S. parent. For information regarding further commitments under the Company's operating leases, see Note 11 of Notes to the Company's Consolidated Financial Statements. 16
On December 15, 2002 the Company entered into a definitive agreement with Insilco Technologies, Inc. ("Insilco") for the purchase by the Company of certain assets, subject to certain liabilities, and common shares of entities comprising Insilco's passive component group for $35 million in cash plus the assumption of certain liabilities. On March 10, 2003 the Bankruptcy Court entered an order approving this agreement. This approval order authorizes Insilco to consummate the sale of assets and common shares of various entities of Insilco to the Company, subject to certain assumed liabilities and free and clear of all encumbrances on Insilco's U.S. operations. The Company closed on this acquisition on March 21, 2003. On January 2, 2003 the Company entered into an asset purchase agreement with Advanced Power Components PLC ("APC") to purchase the communications products division of APC for $5.5 million in cash plus the assumption of certain liabilities. The Company will be required to make contingent purchase price payments equal to 5% of sales, as defined, in excess of $5.5 million per year for the years 2003 and 2004. The transactions will be accounted for using the purchase method of accounting and, accordingly, the results of operations of Insilco will be included in the Company's financial statements from March 21, 2003 and the results of operations of APC will be included in the Company's financial statements from January 2, 2003. On May 11, 2001, the Company acquired 100% of the common stock of E-Power Ltd. ("E-Power") and the assets and business of Current Concepts, Inc. ("Current Concepts") for an aggregate of $6,285,000 in cash (including acquisition expenses). The Company will be required to make contingent purchase price payments up to approximately $7.6 million should the acquired companies reach various sales levels. The transactions were accounted for using the purchase method of accounting and, accordingly, the results of operations of Current Concepts and E-Power have been included in the Company's financial statements since the date of acquisition. The excess of the purchase price over the net assets acquired ($2.0 million) and other intangible assets ($3.7 million) is approximately $5.7 million. The identifiable intangible assets, other than goodwill, are being amortized on a straight-line basis over 4 to 10 years. Goodwill has been amortized based on a 15 year life from May 11, 2001 through December 31, 2001. Effective January 1, 2002, in accordance with the provisions of Financial Accounting Standards Board Opinion No. 142, the Company ceased amortization of goodwill and will review goodwill at least annually for impairment. See Note 1 of notes to the consolidated financial statements. On July 29, 2002 the Company purchased a building in San Diego, CA for approximately $2.5 million. The Company moved its domestic research and development operations to this facility in December 2002 after making approximately $.7 million in improvements to the facility. During 2001 the Chairman of the Board passed away. Under the terms of his employment agreement dated October 29, 1997, the Company is obligated to pay his Estate the balance due on his employment agreement which approximates $895,000 (of which $195,000 was expensed in prior years) through December 31, 2003 plus health insurance benefits. In addition, the Board of Directors unanimously agreed to modify the terms of certain options held by the late Chairman's Estate. This resulted in a non-cash compensation charge of $533,000 for the year ended December 31, 2001. 17
On May 9, 2000 the Board of Directors authorized the repurchase of up to 10% of the Company's outstanding common shares from time to time in market or privately negotiated transactions. As of December 31, 2002 the Company had purchased and retired 23,600 Class B shares at a cost of approximately $808,000, which reduced the number of Class B common shares outstanding. During 2002, the Company's cash and cash equivalents decreased by approximately $10.3 million, reflecting approximately $6.5 million in purchases of plant and equipment, $6.5 million for the payment for acquisitions, approximately $1.6 million in dividends and $8.8 million in purchases of marketable securities, offset, in part, by approximately $5.0 million provided by operating activities, $6.1 million from the sale of marketable securities and $1.9 million from the exercise of stock options. Cash, marketable securities and cash equivalents and accounts receivable comprised approximately 55.0% and 55.2% of the Company's total assets at December 31, 2002 and 2001, respectively. The Company's current ratio (i.e., the ratio of current assets to current liabilities) was 8.1 to 1 and 7.2 to 1 at December 31, 2002 and 2001, respectively. At December 31, 2002, the Company was obligated under non-cancelable operating leases, purchase commitments for raw materials and capital commitments as follows: Years Ending Purchase Capital December 31, Leases Commitments Commitments ------------ ------ ----------- ----------- 2003 $ 567,000 $ 801,000 $ 412,000 2004 327,000 -- -- 2005 203,000 -- -- 2006 87,000 -- -- 2007 -- -- -- ----------- ---------- ---------- $ 1,184,000 $ 801,000 $ 412,000 =========== ========== ========== The Company is currently obligated to fund the Company's Supplemental Executive Retirement Plan ("SERP"). As of December 31, 2002 the SERP had an unfunded benefit obligation of approximately $1.9 million. See Note 8 of the Notes to Consolidated Financial Statements for further information. Other Matters - ------------- The Company believes that it has sufficient cash reserves to fund its foreseeable working capital needs. It may, however, seek to expand such resources through bank borrowings, at favorable lending rates, from time to time. 18
Territories of Hong Kong, Macau and The People's Republic of China ------------------------------------------------------------------ The Territory of Hong Kong became a Special Administrative Region ("SAR") of The People's Republic of China in the middle of 1997. The territory of Macau became a SAR of The People's Republic of China at the end of 1999. Management cannot presently predict what future impact, if any, this will have on the Company or how the political climate in China will affect its contractual arrangements in China. Substantially all of the Company's manufacturing operations and approximately 59% of its identifiable assets are located in Hong Kong, Macau, and The People's Republic of China. Accordingly, events resulting from the expiration of such leases as well as any change in the "Most Favored Nation" status granted to China by the U.S. could have a material adverse effect on the Company. New Financial Accounting Standards ---------------------------------- In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial accounting and reporting for obligations and costs associated with the retirement of tangible long-lived assets. The Company is required to implement SFAS No. 143 on January 1, 2003. Management believes the effect of implementing this pronouncement will not have a material impact on the Company's results of operations or financial position. In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board No. 30 "Reporting Results of Operations". This statement also requires sales-leaseback accounting for certain lease modifications that have economic effects that are similar to sales-leaseback transactions, and makes various other technical corrections to existing pronouncements. This statement will be effective for the Company for the year ending December 31, 2003. Management believes that adopting this statement will not have a material effect on the Company's results of operations or financial position. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan. Adoption of this Statement is required with the beginning of fiscal year 2003. The Company has not yet completed its evaluation of the impact of adopting this Statement. 19
In January 2003, the FASB issued SFAS No. 148, "Accounting for Stock Based Compensation-Transition and Disclosure, and amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also requires disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for annual and interim periods beginning after December 15, 2002. Management is currently evaluating the impact of adopting the fair value based method of accounting for stock based employee compensation and will implement the provisions of this statement during the first quarter ending March 31, 2003. In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and interpretation of FASB Statements No. 5, 57,and 107 and Rescission of FASB Interpretation No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5, Accounting for Contingencies, relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees . This interpretation clarifies that a guarantor is required to recognize, at the inception of certain types of guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements in this interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company is assessing the impact that the adoption of this interpretation will have and will implement the provisions of this statement during the first quarter ending March 31, 2003. In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities," which addresses consolidation by business enterprises of variable interest entities. In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable interest entity often holds financial assets, including loans or receivables, real estate or other property. A variable interest entity may be essentially passive or it may engage in research and development or other activities on behalf of another company. The objective of Interpretation No. 46 is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. Interpretation No. 46 changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of Interpretation No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not have any variable interest entities, and, accordingly, adoption is not expected to have a material effect on the Company. 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Fair Value of Financial Instruments -- The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments". The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The Company has not entered into, and does not expect to enter into, financial instruments for trading or hedging purposes. The Company does not currently anticipate entering into interest rate swaps and/or similar instruments. The Company's carrying values of cash, marketable securities, accounts receivable, accounts payable and accrued expenses are a reasonable approximation of their fair value. The Company's business in this regard is subject to certain risks, including, but not limited to, differing economic conditions, loss of significant customers, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility. The Company's future results could be materially and adversely impacted by changes in these or other factors. Item 8. Financial Statements and Supplementary Data ------------------------------------------- See the consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements for the information required by this item. 21
BEL FUSE INC INDEX Page ----------- Financial Statements -------------------- Independent Auditors' Report F-1 Consolidated Balance Sheets as of December 31, 2002 and 2001 F-2 - F-3 Consolidated Statements of Operations for Each of the Three Years in the Period Ended December 31, 2002 F-4 Consolidated Statements of Stockholders' Equity for Each of the Three Years in the Period Ended December 31, 2002 F-5 - F-6 Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2002 F-7 - F-9 Notes to Consolidated Financial Statements F-10 - F-31 Selected Quarterly Financial Data - Years Ended December 31, 2002 and 2001 (Unaudited) F-32
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Bel Fuse Inc Jersey City, New Jersey We have audited the accompanying consolidated balance sheets of Bel Fuse Inc. and subsidiaries (the "Company") as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and the 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Bel Fuse Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As described in Note 1, effective January 1, 2002, in connection with the adoption of SFAS No. 142, "Goodwill and Intangible Other Assets", the Company ceased amortization of goodwill. Deloitte & Touche LLP New York, New York March 18, 2003 (March 21, 2003 as to Notes 11 and 12) F-1
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, December 31, 2002 2001 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents $ 59,002,581 $ 69,278,574 Marketable securities 4,966,275 2,342,663 Accounts receivable - less allowance of $945,000 and $945,000 16,839,497 9,814,914 Inventories 12,384,472 13,870,822 Prepaid expenses and other current assets 190,199 269,275 Refundable income taxes 681,887 826,859 Deferred income taxes 439,000 817,000 ------------ ------------ Total Current Assets 94,503,911 97,220,107 ------------ ------------ Property, plant and equipment - net 37,605,195 36,353,951 Goodwill and other intangibles - net 7,624,729 13,653,521 Other assets (including $5.5 million of deposits relating to APC acquisition) 7,159,077 288,943 ------------ ------------ TOTAL ASSETS $146,892,912 $147,516,522 ============ ============ F-2
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) December 31, December 31, 2002 2001 ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 5,099,894 $ 4,624,185 Accrued expenses 6,202,871 8,492,425 Dividends payable 412,000 405,000 ------------- ------------- Total Current Liabilities 11,714,765 13,521,610 ------------- ------------- Deferred income taxes 4,519,000 4,532,000 ------------- ------------- Total Liabilities 16,233,765 18,053,610 ------------- ------------- Commitments and Contingencies Stockholders' Equity: Preferred stock, no par value, authorized 1,000,000 shares; none issued -- -- Class A common stock, par value $.10 per share - authorized 10,000,000 shares; outstanding 2,676,225 and 2,664,637 shares, respectively (net of 1,072,770 treasury shares) 267,623 266,464 Class B common stock, par value $.10 per share - authorized 30,000,000 shares; outstanding 8,261,492 and 8,105,117 shares, respectively (net of 3,218,310 treasury shares) 826,149 810,512 Additional paid-in capital 13,982,688 11,674,768 Retained earnings 115,632,819 116,699,114 Cumulative other comprehensive income (loss) (50,132) 12,054 ------------- ------------- Total Stockholders' Equity 130,659,147 129,462,912 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 146,892,912 $ 147,516,522 ============= ============= See notes to consolidated financial statements. F-3
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, ---------------------------------------------------- 2002 2001 2000 ---- ---- ---- Net Sales $ 95,527,892 $ 96,044,817 $ 145,226,811 ------------- ------------- ------------- Costs and expenses: Cost of sales 72,420,220 89,603,327 88,478,545 Selling, general and administrative 22,269,733 21,561,028 23,284,152 ------------- ------------- ------------- 94,689,953 111,164,355 111,762,697 ------------- ------------- ------------- Income (loss) from operations 837,939 (15,119,538) 33,464,114 Other income - net 940,058 2,410,566 3,912,347 ------------- ------------- ------------- Earnings (loss) before provision for income taxes 1,777,997 (12,708,972) 37,376,461 Income tax provision (benefit) 1,199,000 (547,000) 5,159,000 ------------- ------------- ------------- Net earnings (loss) $ 578,997 $ (12,161,972) $ 32,217,461 ============= ============= ============= Earnings (loss) per common share - basic $ 0.05 $ (1.13) $ 3.04 ============= ============= ============= Earnings (loss) per common share - diluted $ 0.05 $ (1.13) $ 2.94 ============= ============= ============= Weighted average number of common shares outstanding - basic 10,907,371 10,715,921 10,582,916 ============= ============= ============= Weighted average number of common shares outstanding - diluted 11,085,934 10,715,921 10,953,540 ============= ============= ============= See notes to consolidated financial statements. F-4
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Cumulative Other Compre- Compre- Class A Class B Additional hensive Retained hensive Common Common Paid-In Total Income (loss) Earnings Income (loss) Stock Stock Capital ------------- ------------- -------- ------------- --------- --------- --------- Balance, January 1, 2000 $ 110,253,937 $ 99,839,765 $ 548,268 $ 263,220 $ 791,031 $8,811,653 Exercise of stock options 962,516 1,463 10,708 950,345 Tax benefits arising from the disposition of non-qualified incentive stock options 438,000 438,000 Cash dividends on Class B common stock (1,586,650) (1,586,650) Currency translation adjustment 26,607 $ 26,607 26,607 Purchase and retirement of common stock (807,805) (2,360) (805,445) Issuance of stock warrants for consulting services 25,000 25,000 Decrease in marketable securities-net of taxes (512,986) (512,986) (512,986) Net income 32,217,461 32,217,461 32,217,461 ------------ Comprehensive Income $ 31,731,082 ============ ------------- ------------ ---------- --------- --------- ---------- Balance, December 31, 2000 141,016,080 130,470,576 61,889 264,683 799,379 9,419,553 Exercise of stock options 1,328,129 1,781 11,133 1,315,215 Tax benefits arising from the disposition of non-qualified incentive stock options 382,000 382,000 Cash dividends on Class B common stock (1,609,490) (1,609,490) Modifications of terms of stock option 533,000 533,000 Currency translation adjustment 3,165 $ 3,165 3,165 Issuance of common stock warrants for consulting services 25,000 25,000 Decrease in marketable securities-net of taxes (53,000) (53,000) (53,000) Net loss (12,161,972) (12,161,972) (12,161,972) ------------ Comprehensive loss $(12,211,807) ============ ------------- ------------ ---------- --------- --------- ----------- Balance, December 31, 2001 129,462,912 116,699,114 12,054 266,464 810,512 11,674,768 See notes to consolidated financial statements. F-5
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) Cumulative Other Compre- Compre- Class A Class B Additional hensive Retained hensive Common Common Paid-In Total Income (loss) Earnings Income (loss) Stock Stock Capital ------------- ------------- -------- ------------- --------- --------- --------- Balance, December 31, 2001 129,462,912 116,699,114 12,054 266,464 810,512 11,674,768 Exercise of stock options 1,872,716 1,159 15,637 1,855,920 Tax benefits arising from the disposition of non-qualified incentive stock options 452,000 452,000 Cash dividends on Class B common stock (1,645,292) (1,645,292) Currency translation adjustment (19,186) $ (19,186) (19,186) Decrease in marketable securities-net of taxes (43,000) (43,000) (43,000) Net income 578,997 578,997 578,997 ------------ Comprehensive income $ 516,811 ============ ------------- ------------ ---------- --------- --------- ----------- Balance, December 31, 2002 $ 130,659,147 $115,632,819 $ (50,132) $ 267,623 $ 826,149 $13,982,688 ============= ============ ========== ========= ========= =========== See notes to consolidated financial statements. F-6
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, -------------------------------------------------- 2002 2001 2000 ------------ ------------ ----------- Cash flows from operating activities: Net income (loss) $ 578,997 $(12,161,972) $ 32,217,461 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 5,998,426 7,784,577 5,931,755 Goodwill impairment 5,200,000 -- -- Inventory write-off -- 14,586,000 -- Loss on write-off/sale of fixed assets 8,614 3,957,267 -- Restructuring charges -- 1,056,000 -- Other 452,000 941,575 493,269 Deferred income taxes 405,000 (2,592,000) 1,783,000 Gain on sale of marketable securities -- -- (1,081,437) Changes in operating assets and liabilities (7,552,738) 7,400,734 (941,946) ------------ ------------ ------------ Net Cash Provided by Operating Activities 5,090,299 20,972,181 38,402,102 ------------ ------------ ------------ Cash flows from investing activities: Purchase of property, plant and equipment (6,477,313) (5,975,441) (8,127,595) Purchase of marketable securities (8,824,630) (5,864,808) (773,253) Deposit on APC acquisition (5,500,000) -- -- Cost of acquisitions - net of cash acquired (61,411) (5,943,046) -- Deferred acquisition costs related to Insilco (947,121) -- -- Proceeds from sale of marketable securities 6,131,796 3,663,213 3,024,432 Proceeds from sale of equipment 48,964 89,164 865 ------------ ------------ ------------ Net Cash Used in Investing Activities (15,629,715) (14,030,918) (5,875,551) ------------ ------------ ------------ See notes to consolidated financial statements. F-7
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Year Ended December 31, ---------------------------------------------------- 2002 2001 2000 ------------ ------------ -------------- Cash flows from financing activities: Repurchase of common stock -- -- (807,805) Loan repayments 29,000 29,000 104,000 Proceeds from exercise of stock options 1,872,716 1,328,129 962,516 Dividends paid to common shareholders (1,638,293) (1,606,851) (1,580,858) ------------ ------------ ------------ Net Cash Provided By (Used In) Financing Activities 263,423 (249,722) (1,322,147) ------------ ------------ ------------ Net Increase (decrease) in Cash and Cash Equivalents (10,275,993) 6,691,541 31,204,404 Cash and Cash Equivalents - beginning of year 69,278,574 62,587,033 31,382,629 ------------ ------------ ------------ Cash and Cash Equivalents - end of year $ 59,002,581 $ 69,278,574 $ 62,587,033 ============ ============ ============ Changes in operating assets and liabilities consist of: (Increase) decrease in accounts receivable $ (7,024,583) $ 15,351,628 $ (6,377,235) (Increase) decrease in inventories 1,486,350 1,863,260 (6,048,952) (Increase) decrease in prepaid expenses and other current assets 50,076 73,287 (87,300) (Increase) decrease in prepaid taxes 144,972 (826,859) -- (Increase) decrease in other assets (423,134) 29,409 54,123 Increase (decrease) in accounts payable 475,709 (8,446,636) 8,662,384 (Decrease) increase in accrued expenses (2,262,128) (643,355) 3,096,884 Increase (decrease) in income taxes payable -- -- (241,850) ------------ ------------ ------------ $ (7,552,738) $ 7,400,734 $ (941,946) ============ ============ ============ See notes to consolidated financial statements. F-8
BEL FUSE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED) Year Ended December 31, ------------------------------------------ 2002 2001 2000 ---------- ---------- ---------- Supplementary information: Cash paid during the year for: Income taxes $ 205,000 $2,421,000 $3,183,000 ========== ========== ========== Details of acquisition: Fair value of assets acquired (excluding cash of $341,954) $ 267,789 Intangibles 5,675,257 ---------- Cash paid for acquisition $5,943,046 ========== See notes to consolidated financial statements. F-9
BEL FUSE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Bel Fuse Inc. and subsidiaries (the "Company") operate in one industry segment and are engaged in the design, manufacture and sale of products used in local area networking, telecommunication, business equipment and consumer electronic applications. Operations are managed on a geographic basis. Sales are predominantly in North America, Western Europe and the Far East. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements --------------------------- include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. USE OF ESTIMATES - The preparation of the financial statements in ---------------- conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS - Cash equivalents include short-term investments in ---------------- U.S. treasury bills and commercial paper with an original maturity of three months or less when purchased. At December 31, 2002 and 2001, cash equivalents approximate $41,207,000 and $50,588,000, respectively. MARKETABLE SECURITIES - The Company classifies its investments in --------------------- equity securities as "available for sale", and accordingly, reflects unrealized gains and losses, net of deferred income taxes, as cumulative other comprehensive income. The fair values of marketable securities are estimated based on quoted market prices. Realized gains or losses from the sales of marketable securities are based on the specific identification method. F-10
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) CONCENTRATION OF CREDIT RISK - Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable and temporary cash investments. The Company grants credit primarily to original equipment manufacturers and to subcontractors of original equipment manufacturers based on an evaluation of the customer's financial condition, without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company controls its exposure to credit risk through credit approvals, credit limits and monitoring procedures and establishes allowances for anticipated losses. The Company places its temporary cash investments with quality financial institutions and, by policy, limits the amount of credit exposure with any one financial instrument. INVENTORIES - Inventories are stated at the lower of weighted average ----------- cost or market. REVENUE RECOGNITION - Revenue is recognized when products are shipped ------------------- and title passes to customers. GOODWILL AND OTHER INTANGIBLES - Goodwill represents the excess of ------------------------------ purchase price and related costs over the value assigned to the net tangible and other intangible assets with finite lives acquired in a business acquisition. Prior to January 1, 2002, goodwill has been amortized on a straight-line basis over 4 to 15 years. Amortization expense was $-0- in 2002, $792,000 in 2001, and $679,000 in 2000. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives and are no longer amortized, but are subject to, at a minimum, an annual impairment test. If the carrying value of goodwill or intangible assets exceeds its fair market value, an impairment loss would be recorded. The Company uses a discounted cash flow model to determine fair market value of the Company's reporting units. In the fourth quarter of 2002, the Company recorded a goodwill impairment charge of $5,200,000. Other intangibles include patents and product information, covenants not-to-compete and supply agreements. Amounts assigned to these intangibles are based on independent appraisals. Other intangibles are being amortized over 4 to 10 years. Amortization expense was $890,000 in 2002, $1,426,000 in 2001 and $820,000 in 2000. F-11
The following information represents proforma net income (loss) and earnings (loss) per share assuming the adoption of SFAS No. 142 in the first quarter of 2000: For the year Ended December 31, ------------------------------------------------- 2002 2001 2000 ---------- ------------- ------------ Reported net income (loss) $ 578,997 $ (12,161,972) $ 32,217,461 Addback: Goodwill amortization (net of income tax) -- 653,000 550,000 ----------- -------------- ------------ Adjusted net income (loss) $ 578,997 $ (11,508,972) $ 32,767,461 =========== ============== ============ Basic earnings (loss) per share: Reported net income (loss) $ 0.05 $ (1.13) $ 3.04 Addback: Goodwill amortization -- 0.06 0.05 ----------- -------------- ------------ Adjusted net income (loss) $ 0.05 $ (1.07) $ 3.09 =========== ============== ============ Diluted earnings (loss) per share: Reported net income (loss) $ 0.05 $ (1.13) $ 2.94 Addback: Goodwill amortization -- 0.06 0.05 ------------ Adjusted net income (loss) $ 0.05 $ (1.07) $ 2.99 =========== ============== ============ The changes in the carrying value of goodwill for the year ended December 31, 2002 are as follows: Balance, December 31, 2001 $ 10,019,563 Impairment (5,200,000) ------------ Balance, December 31, 2002 $ 4,819,563 ============ The components of other intangible assets are as follows: December 31, 2002 December 31, 2001 -------------------------- -------------------------- Gross Carrying Accumulated Gross Carrying Accumulated Amount Amortization Amount Amortization -------------- ------------ -------------- ------------ Patents and Product Information $1,335,000 $ 486,819 $1,335,000 $ 332,708 Covenants not-to-compete 2,961,411 1,004,426 2,900,000 458,334 Supply agreement 2,660,000 2,660,000 2,660,000 2,470,000 ---------- ---------- ---------- ---------- $6,956,411 $4,151,245 $6,895,000 $3,261,042 ========== ========== ========== ========== Estimated amortization expense for other intangible assets for the next five years follows: Estimated Amortization December 31, Expense ------------ ------------ 2003 $ 709,000 2004 709,000 2005 633,000 2006 486,000 2007 97,000 F-12
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) DEPRECIATION - Property, plant and equipment are stated at cost less ------------ accumulated depreciation and amortization. Depreciation and amortization are calculated primarily using the declining-balance method for machinery and equipment and the straight-line method for buildings and improvements over their estimated useful lives. INCOME TAXES - The Company accounts for income taxes using an asset and ------------ liability approach under which deferred income taxes are recognized by applying enacted tax rates applicable to future years to the differences between the financial statement carrying amounts and the tax bases of reported assets and liabilities. Except for a portion of foreign earnings, an income tax provision has not been recorded for U.S. federal income taxes on the undistributed earnings of foreign subsidiaries as such earnings are intended to be permanently reinvested in those operations. Such earnings would become taxable upon the sale or liquidation of these foreign subsidiaries or upon the repatriation of dividends. The principal items giving rise to deferred taxes are the use of accelerated depreciation methods for plant and equipment, the assumed repatriation of a portion of foreign earnings and certain expenses which have been deducted for financial reporting purposes which are not currently deductible for income tax purposes and the future tax benefit of certain foreign net operating loss carryforwards. STOCK - BASED COMPENSATION - The Company accounts for equity-based -------------------------- compensation issued to employees in accordance with Accounting Principles Board ("ABP") Opinion No. 25 "Accounting for Stock Issued to Employees". APB No. 25 requires the use of the intrinsic value method, which measures compensation cost as the excess, if any, of the quoted market price of the stock at the measurement date over the amount an employee must pay to acquire the stock. The Company makes disclosures of pro forma net earnings and earnings per share as if the fair-value-based method of accounting had been applied as required by SFAS No. 123 "Accounting for Stock-Based Compensation-Transition and Disclosure". On July 6, 2001 the Chairman of the Board passed away. The Board of Directors unanimously agreed to modify the terms of certain options held by the late Chairman's Estate. This resulted in a non-cash compensation charge of $533,000 for the year ended December 31, 2001. F-13
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) EVALUATION OF LONG-LIVED ASSETS - Long-lived assets are assessed for ------------------------------- recoverability on an on-going basis. In evaluating the fair value and future benefits of long-lived assets, their carrying value would be reduced by the excess, if any, of the long-lived asset over management's estimate of the anticipated undiscounted future net cash flows of the related long-lived asset. In 2001, the Company wrote-off property and equipment with a net book value of approximately $4.1 million. EARNINGS (LOSS) PER COMMON SHARE - Basic earnings (loss) per common -------------------------------- share are computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the year. Diluted earnings per common share are computed by dividing net earnings by the weighted average number of common shares and potential common shares outstanding during the year. Potential common shares used in computing diluted earnings per share relate to stock options and warrants which, if exercised, would have a dilutive effect on earnings per share. The number of potential common shares outstanding were 178,563, 218,212, and 370,624 for the years ended December 31, 2002, 2001 and 2000, respectively. During the year ended December 31, 2001 potential common shares outstanding were omitted from the calculation of loss per share as the effect would be antidilutive. During the years ended December 31, 2002 and 2000, there were no antidilutive options and warrants omitted from the calculation of diluted earnings per share. FAIR VALUE OF FINANCIAL INSTRUMENTS - For financial instruments, ----------------------------------- including cash, accounts receivable, accounts payable and accrued expenses, it was assumed that the carrying amount approximated fair value because of the short maturities of such instruments. NEW FINANCIAL ACCOUNTING STANDARDS - In January 2001, the Company ---------------------------------- adopted SFAS 133 "Accounting for Derivative Instruments and Hedging Activities, as amended ("SFAS 133 as amended"). SFAS 133 as amended, established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Under SFAS 133, as amended, certain contracts that were formerly not considered derivatives may now meet the definition of a derivative. Because the Company does not currently utilize derivatives, the impact of the adoption was not material to the Company's financial statements. In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial accounting and reporting for obligations and costs associated with the retirement of tangible long-lived assets. The Company is required to implement SFAS No. 143 on January 1, 2003. Management believes the effect of implementing this pronouncement will not have a material impact on the Company's results of operations or financial position. F-14
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", effective for fiscal years beginning after December 15, 2001. Under SFAS No. 144 assets held for sale will be included in discontinued operations if the operations and cash flows will be or have been eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations of the component. The Company adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the Company's results of operations or financial position. In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board No. 30 "Reporting Results of Operations". This statement also requires sales-leaseback accounting for certain lease modifications that have economic effects that are similar to sales-leaseback transactions, and makes various other technical corrections to existing pronouncements. This statement will be effective for the Company for the year ending December 31, 2003. Management believes that adopting this statement will not have a material effect on the Company's results of operations or financial position. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan. Adoption of this Statement is required with the beginning of fiscal year 2003. The Company has not yet completed the evaluation of the impact of adopting this Statement. In January 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123" SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also requires disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for annual and interim periods beginning after December 15, 2002. Management is currently evaluating the impact of adopting the fair value based method of accounting for stock-based employee compensation and will implement the provisions of this statement during the first quarter ending March 31, 2003. F-15
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and interpretation of FASB Statements No. 5, 57,and 107 and Rescission of FASB Interpretation No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5, Accounting for Contingencies, relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. This interpretation clarifies that a guarantor is required to recognize, at the inception of certain types of guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements in this interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company is assessing the impact that the adoption of this interpretation will have and will implement the provisions of this statement during the first quarter ending March 31, 2003. In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities," which addresses consolidation by business enterprises of variable interest entities. In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable interest entity often holds financial assets, including loans or receivables, real estate or other property. A variable interest entity may be essentially passive or it may engage in research and development or other activities on behalf of another company. The objective of Interpretation No. 46 is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. Interpretation No. 46 changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of Interpretation No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not have any variable interest entities, and, accordingly, adoption is not expected to have a material effect on the Company. F-16
2. ACQUISITION On May 11, 2001, the Company acquired 100% of the common stock of E-Power Ltd. ("E-Power") and the assets and business of Current Concepts, Inc. ("Current Concepts") for an aggregate of $6,285,000 in cash (including acquisition expenses). The Company will be required to make contingent purchase price payments of up to approximately $7.6 million should the acquired companies reach various sales levels. During the year ended December 31, 2002, $61,000 of contingent purchase price payments were made. The transactions were accounted for using the purchase method of accounting and, accordingly, the results of operations of Current Concepts and E-Power have been included in the Company's consolidated financial statements since the date of acquisition. Purchase price allocations were based on independent formal appraisals. The excess of the purchase price over net assets acquired ($2.0 million) and other identifiable intangible assets ($3.7 million) approximated $5.7 million. The identifiable intangible assets, other than goodwill, are being amortized on a straight-line basis over a period of 4 to 10 years. Goodwill has been amortized based on a 15 year life from May 11, 2001 through December 31, 2001. After January 1, 2002, in accordance with the provisions of Financial Accounting Standards Board Opinion No. 142, the Company ceased amortization of goodwill and will review goodwill at least annually for impairment. The following unaudited pro forma summary results of operations assumes that both Current Concepts and, E-Power had been acquired as of January 1, 2000: Year Ended December 31, -------------------------------------------- 2001 2000 -------- -------- (Dollars in thousands except per share data) Sales $ 96,133 $145,929 Net income (loss) (13,321) 31,173 Earnings (loss) per share-diluted $ (1.24) $ 2.85 The information above is not necessarily indicative of the results of operations that would have occurred if the acquisitions had been consummated as of January 1, 2000, nor should such information be construed as being a representation of the future results of operations of the Company. 3. MARKETABLE SECURITIES At December 31, 2002 and 2001 respectively, marketable securities have a cost of approximately $5,090,000 and $2,396,000, an estimated fair value of approximately $4,966,000 and $2,343,000, gross unrealized loss of approximately $124,000 and $53,000 and realized gain of approximately $1,081,000 during 2000. The realized gain in 2000 is included in other income -net. F-17
4. INVENTORIES Inventories consist of the following: December 31, ---------------------------------- 2002 2001 ----------- ----------- Raw materials $ 7,350,130 $ 9,289,702 Work in process 53,776 67,638 Finished goods 4,980,566 4,513,482 ----------- ----------- $12,384,472 $13,870,822 =========== =========== 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: December 31, ---------------------------------- 2002 2001 ----------- ----------- Land $ 2,713,966 $ 1,660,466 Buildings and improvements 19,133,907 16,931,722 Machinery and equipment 55,840,319 54,586,642 Idle property held for sale 250,000 250,000 ----------- ----------- 77,938,192 73,428,830 Less accumulated depreciation 40,332,997 37,074,879 ----------- ----------- $37,605,195 $36,353,951 =========== =========== Depreciation expense for the years ended December 31, 2002, 2001, and 2000 was $5,108,000, $5,521,000, and $4,425,000, respectively. F-18
6. INCOME TAXES The provision (benefit) for income taxes consists of the following: Years Ended December 31, ----------------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Current: Federal $ 345,000 $ 1,674,000 $ 1,758,000 Foreign 411,000 244,000 1,367,000 State 38,000 127,000 251,000 ----------- ----------- ----------- 794,000 2,045,000 3,376,000 ----------- ----------- ----------- Deferred: Federal and state 265,000 (1,616,000) 1,806,000 Foreign 140,000 (976,000) (23,000) ----------- ----------- ----------- 405,000 (2,592,000) 1,783,000 ----------- ----------- ----------- $ 1,199,000 $ (547,000) $ 5,159,000 =========== =========== =========== A reconciliation of taxes on income computed at the federal statutory rate to amounts provided is as follows: Years Ended December 31, 2002 2001 2000 ------------ ------------ ------------ Tax provision (benefit) computed at the Federal statutory rate of 34% $ 604,000 $ (4,321,000) $ 12,708,000 Increase (decrease) in taxes resulting from: Different tax rates and permanent differences applicable to foreign operations 366,000 3,698,000 (7,376,000) State taxes, net of federal benefit 163,000 84,000 166,000 Other, net 66,000 (8,000) (339,000) ------------ ------------ ------------ $ 1,199,000 $ (547,000) $ 5,159,000 ============ ============ ============ F-19
6. INCOME TAXES (continued) The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to the deferred tax liability and deferred tax asset and their approximate tax effects are as follows: December 31, -------------------------------------------------------------------- 2002 2001 ------------------------------- ------------------------------ Temporary Temporary Difference Tax Effect Difference Tax Effect ------------ ------------ ------------ ----------- Deferred Tax Liabilities- non-current: Depreciation $ 13,094,000 $ 1,149,000 $ 11,758,000 $ 1,101,000 Amortization (3,412,000) (1,217,000) (841,000) (362,000) Unremitted earnings of foreign subsidiaries not permanently reinvested 21,420,000 6,426,000 20,180,000 6,054,000 Foreign net operating loss carryforward (7,109,000) (567,000) (8,000,000) (696,000) Other temporary differences (3,181,000) (1,272,000) (3,913,000) (1,565,000) ------------ ------------ ------------ ------------ $ 20,812,000 $ 4,519,000 $ 19,184,000 $ 4,532,000 ============ ============ ============ ============ Deferred Tax Assets - current: Unrealized depreciation in marketable securities $ 123,000 $ 49,000 $ 50,000 $ 20,000 Reserves and accruals 976,000 390,000 1,943,000 797,000 ------------ ------------ ------------ ------------ $ 1,099,000 $ 439,000 $ 1,993,000 $ 817,000 ============ ============ ============ ============ The Company files income tax returns in all jurisdictions in which it has reason to believe it is subject to tax. Historically, the Company has been subject to examination by various taxing jurisdictions. To date, none of these examinations has resulted in any material additional tax. Nonetheless, any tax jurisdiction may contend that a filing position claimed by the Company regarding one or more of its transactions is contrary to that jurisdiction's laws or regulations. The Company has foreign net operating loss carry-forwards of approximately $7,109,000 which expire during the years ending 2004 through 2005. F-20
6. INCOME TAXES (continued) It is management's intention to permanently reinvest the majority of the earnings of foreign subsidiaries in the expansion of its foreign operations. $643,000 and $1,810,000 of earnings were repatriated during 2002 and 2001, respectively. No earnings were repatriated during 2000. Unrepatriated earnings, upon which U.S. income taxes have not been accrued, approximate $92.0 million at December 31, 2002. Estimated income taxes related to unrepatriated foreign earnings would approximate $28.0 million. Management has identified approximately $21.4 million of foreign earnings that may not be permanently reinvested. Deferred income taxes in the amount of approximately $6.4 million have been provided on such earnings ($.4 million during 2002, $(.1) million during 2001 and $6.1 million during 2000 and prior years). 7. SEGMENTS - OPERATIONS IN GEOGRAPHIC AREAS, FOREIGN OPERATIONS AND EXPORT SALES The Company does not have reportable operating segments as defined in Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". Operations are managed on a geographic basis. The method for attributing revenues to individual countries is based on the destination to which finished goods are shipped. The Company operates facilities in the United States, Europe and the Far East. The Company had sales to individual customers in excess of ten percent of consolidated net sales as follows: The amount and percentages of the Company's sales were $11,606,000 (12.1%), and $11,410,000 (11.9%) in 2002, and $20,707,000 (14.3%), $17,622,000 (12.1%) and $15,483,000 (10.2%) in 2000, respectively. No customers represented in excess of ten percent of consolidated sales in 2001. The loss of any of these customers would have a material adverse effect on the Company's results of operations, financial position and cash flows. F-21
7. SEGMENTS - OPERATIONS IN GEOGRAPHIC AREAS, FOREIGN OPERATIONS AND EXPORT SALES (Continued) 2002 2001 2000 ------------- ------------- ------------- Revenue from unrelated entities and country of Company's domicile: North America $ 26,227,607 $ 47,257,490 $ 84,389,919 Asia/Pacific 35,046,275 22,895,848 30,021,853 Hong Kong 23,586,199 13,906,574 14,292,061 United Kingdom 362,119 1,296,138 2,211,792 Europe 10,025,464 10,354,125 13,903,454 Other 280,228 334,642 407,732 ------------- ------------- ------------- $ 95,527,892 $ 96,044,817 $ 145,226,811 ============= ============= ============= Total Revenues: United States $ 28,956,505 $ 46,989,911 $ 84,875,000 Asia 81,906,834 75,523,422 121,230,526 Less intergeographic revenues (15,335,447) (26,468,516) (60,878,715) ------------- ------------- ------------- $ 95,527,892 $ 96,044,817 $ 145,226,811 ============= ============= ============= Income (loss) from Operations: United States $ (90,470) $ (1,877,751) $ 3,735,292 Asia 928,409 (13,241,787) 29,728,822 ------------- ------------- ------------- $ 837,939 $ (15,119,538) $ 33,464,114 ============= ============= ============= Identifiable Assets: United States $ 46,101,626 $ 47,116,502 $ 49,925,968 Asia 118,819,792 112,651,502 123,634,713 Less intergeographic eliminations (18,028,506) (12,251,482) (4,047,276) ------------- ------------- ------------- Total Identifiable Assets $ 146,892,912 $ 147,516,522 $ 169,513,405 ============= ============= ============= Capital Expenditures: United States $ 3,394,916 $ 1,583,417 $ 2,337,330 Asia 3,082,397 4,392,024 5,790,265 ------------- ------------- ------------- $ 6,477,313 $ 5,975,441 $ 8,127,595 ============= ============= ============= Depreciation and Amortizaion expense: United States $ 858,155 $ 1,477,180 $ 1,262,419 Asia (1) 5,140,271 6,307,397 4,669,336 ------------- ------------- ------------- $ 5,998,426 $ 7,784,577 $ 5,931,755 ============= ============= ============= (1) Excludes $5,200,000 of goodwill impairment in 2002. F-22
7. SEGMENTS - OPERATIONS IN GEOGRAPHIC AREAS, FOREIGN OPERATIONS AND EXPORT SALES (Continued) Transfers between geographic areas include raw materials purchased in the United States which are shipped to foreign countries to be manufactured into finished products. Finished products manufactured in foreign countries are then transferred to the United States for sale. Income from operations represents gross profit less operating expenses. Identifiable assets are those assets of the Company that are identified with the operations of each geographic area. The territory of Hong Kong became a Special Administrative Region ("SAR") of the People's Republic of China in the middle of 1997. The territory of Macau became a SAR of the People's Republic of China at the end of 1999. Management cannot presently predict what future impact this will have on the Company, if any, or how the political climate in China will affect the Company's contractual arrangements in China. Substantially all of the Company's manufacturing operations and approximately 59% of its identifiable assets are located in The People's Republic of China and its SARs of Hong Kong and Macau. Accordingly, events which may result from the expiration of such leases, as well as any change in the "Most Favored Nation" status granted to China by the U.S., could have a material adverse effect on the Company. The Company's research and development facilities are located in California, Indiana, Massachusetts, Hong Kong and China. Research and development costs, which are expensed as incurred, amounted to $6,174,000 in 2002, $4,967,000 in 2001, and $6,229,000 in 2000. The Company plans to close its Indiana facility by June 30, 2003 and closed its Texas facility during the fourth quarter of 2002. The Company purchased property in San Diego, California where its research and development facility is located. 8. RETIREMENT FUND AND PROFIT SHARING PLAN The Company maintains a domestic profit sharing plan and a contributory stock ownership and savings 401(K) plan, which combines stock ownership and individual voluntary savings provisions to provide retirement benefits for plan participants. The plan provides for participants to voluntarily contribute a portion of their compensation, subject to certain legal maximums. The Company will match, based on a sliding scale, up to $350 for the first $600 contributed by each participant. Matching contributions plus additional discretionary contributions will be made with Company stock purchased in the open market. The expense for the years ended December 31, 2002, 2001, and 2000 amounted to approximately $207,000, $216,000, and $261,000, respectively. As of December 31, 2002, the plans owned 27,730 and 130,631 shares of Bel Fuse Inc. Class A and Class B common stock, respectively. F-23
8. RETIREMENT FUND AND PROFIT SHARING PLAN (Continued) The Company's Far East subsidiaries have a retirement fund covering substantially all of their Hong Kong based full-time employees. Eligible employees contribute up to 5% of salary to the fund. In addition, the Company may contribute an amount equal to a percentage of eligible salary, as determined by the Company, in cash or Company stock. The expense for the years ended December 31, 2002, 2001, and 2000 amounted to approximately $604,000, $665,000, and $518,000, respectively. As of December 31, 2002, the plan owned 3,323 and 16,842 shares of Bel Fuse Inc. Class A and Class B common stock, respectively. During 2002, the Company established a Supplemental Executive Retirement Plan ("SERP") which provides retirement benefits to certain officers and other select employees of the Company. The benefits are unfunded and limited to a maximum of 40% of monthly average compensation. F-24
8. RETIREMENT FUND AND PROFIT SHARING PLAN (Continued) The following provides a reconciliation of benefit obligations, funded status of the SERP as well as a summary of significant assumptions: December 31, 2002 - -------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $ -- Service cost 80,153 Interest cost 63,801 Plan amendments 1,760,028 - -------------------------------------------------------------------------------- Benefit obligations at end of year $ 1,903,982 - -------------------------------------------------------------------------------- Funded status of plan: Under funded status $ (1,903,982) Unrecognized prior service costs 1,707,473 - -------------------------------------------------------------------------------- Accrued pension cost $ (196,509) - -------------------------------------------------------------------------------- Balance sheet amounts: Accrued benefit liability $ 1,143,482 Intangible asset 946,973 - -------------------------------------------------------------------------------- The components of SERP expense are as follows: December 31, 2002 - -------------------------------------------------------------------------------- Service cost $ 80,153 Interest cost 63,801 Amortization of adjustments 52,556 - -------------------------------------------------------------------------------- Total SERP expense $ 196,510 - -------------------------------------------------------------------------------- Assumption percentages: Discount rate 6.50% Rate of compensation increase 4.00% - -------------------------------------------------------------------------------- F-25
9. STOCK OPTION PLAN The Company has a Qualified Stock Option Plan (the "Plan") which provides for the granting of "Incentive Stock Options" to key employees within the meaning of Section 422 of the Internal Revenue Code of 1954, as amended. The Plan provides for the issuance of 2,400,000 shares. Substantially all options outstanding become exercisable twenty-five percent (25%) one year from the date of grant and twenty-five percent (25%) for each year of the three years thereafter. The price of the options granted pursuant to the Plan is not to be less than 100 percent of the fair market value of the shares on the date of grant. An option may not be exercised within one year from the date of grant, and in general, no option will be exercisable after five years from the date granted. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation"(SFAS No. 123). Accordingly, no compensation cost has been recognized for the stock options awarded. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards in 2002, 2001 and 2000 consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below: December 31, --------------------------------------------------- 2002 2001 2000 ------------ ------------- ------------ Net earnings (loss) - as reported $ 578,997 $ (12,161,972) $ 32,217,461 Net earnings (loss)- pro forma $ (1,576,938) $ (14,416,817) $ 30,576,995 Earnings (loss) per share - basic-as reported $ 0.05 $ (1.13) $ 3.04 Earnings (loss) per share - basic-pro forma $ (0.15) $ (1.35) $ 2.89 Earnings (loss) per share - diluted-as reported $ 0.05 $ (1.13) $ 2.94 Earnings (loss) per share - diluted-pro forma $ (0.15) $ (1.35) $ 2.79 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2002, 2001 and 2000, respectively: dividends yield of .9%, .7%, and .8%, expected volatility of 76% in 2000 for Class A, and 54%, 41% and 85% for Class B; risk-free interest rate of 3%, 5% and 5%, and expected lives of 5 years. F-26
9. STOCK OPTION PLAN (Continued) Information regarding the Company's Plan for 2002, 2001, and 2000 is as follows: 2002 2001 2000 ------------------------------ ---------------------------- ------------------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price --------------- --------- --------------- ---------- --------------- --------- Options out- standing, begin- ning of year 878,115 $ 17.44 822,429 $ 13.07 568,137 $ 9.03 Options exercised (167,963) $ 11.15 (129,143) $ 10.27 (121,708) $ 7.91 Options granted 78,000 $ 20.92 213,100 $ 29.50 376,000 $ 17.34 Options cancelled (30,914) $ 16.58 (28,271) $ 14.05 -- $ -- -------- -------- --------- Options out- standing, end of year 757,238 $ 19.23 878,115 $ 17.44 822,429 $ 13.07 ======== ======== ======== Options price range at end of year $5.75 to $29.50 $5.75 to $29.50 $5.75 to $19.00 Options price range for exercised shares $5.75 to $18.70 $5.75 to $17.00 $5.75 to $15.44 Options available for grant at end of year 1,105,000 152,000 337,000 Weighted- average fair value of options granted during the year $ 9.75 $ 12.16 $ 9.28 F-27
9. STOCK OPTION PLAN (continued) The following table summarizes information about fixed-price stock options outstanding at December 31, 2002: Weighted- Number Out- Average Weighted Number Weighted- Range of standing at Remaining Average Exercisable at Average Exercise December 31, Contractual Exercise December 31, Exercise Prices 2002 Life Price 2002 Price - ----------------- ------------ ----------- --------- -------------- ---------- $5.75 to $7.00 111,938 -- $ 6.13 111,938 $ 6.13 $15.38 to $15.44 57,000 1 year $ 15.41 32,500 $ 15.41 $17.00 to $19.00 301,200 2 years $ 17.25 145,693 $ 17.32 $29.50 209,100 3 years $ 29.50 37,275 $ 29.50 $19.56 to $22.25 78,000 4 years $ 20.92 -- $ -- ------- ------- 757,238 327,406 ======= ======= 10. COMMON STOCK During 2000 the Board of Directors of the Company authorized the purchase of up to ten percent (10%) of the Company's outstanding common shares. As of December 31, 2002, the Company purchased and retired 23,600 Class B common shares at a cost of approximately $808,000 which reduced the number of Class B common shares outstanding. 11. COMMITMENTS AND CONTINGENCIES Leases ------ The Company leases various facilities. Some of these leases require the Company to pay certain executory costs (such as insurance and maintenance). F-28
Future minimum lease payments for operating leases are approximately as follows: Years Ending December 31, ------------ 2003 $ 567,000 2004 327,000 2005 203,000 2006 87,000 2007 -- ----------- $ 1,184,000 =========== Rental expense was approximately $863,000, $830,000, and $670,000, for the years ended December 31, 2002, 2001, and 2000, respectively. Credit Facilities ----------------- The Company has two domestic lines of credit amounting to $11,000,000 which were unused at December 31, 2002. An unsecured $1 million line of credit is renewable annually. The $10 million line of credit expires on March 21, 2006. Borrowings under the $10 million line of credit are secured by the first priority interest in and a lien on all personal property of Bel Fuse Inc and its subsidiaries. On March 21, 2003 the Company negotiated an additional $10 million secured term loan. The term loan was used to finance the Company's acquisition of the Passive Components division of Insilco Holdings Company, Inc. The $10 million term will fully amortize in 20 equal quarterly installments of principal with a final maturity of March 21, 2008. Interest at 3.75% is payable monthly. The term loan is guaranteed by Bel Fuse Inc and its domestic subsidiaries. The term loan is collateralized with a first priority security interest in and lien on 65% of all of the issued and outstanding shares of the capital stock of the foreign subsidiaries of Bel Fuse Inc. and all other personal property at Bel Fuse Inc (Note 12). The Company's Hong Kong subsidiary has an unsecured line of credit of approximately $2 million which was unused as of December 31, 2002. The line of credit expires December 31, 2003. Borrowing on the line of credit is guaranteed by the U.S. parent. F-29
Facilities ---------- On July 29, 2002, the Company purchased a building in San Diego, CA for approximately $2.5 million. The Company moved its domestic research and development operations to this facility in December 2002 after making approximately $.7 million in improvements to the facility. As of December 31, 2002, there are no outstanding liabilities in connection with this project. Legal Proceedings ----------------- a) The Company commenced an arbitration proceeding before the American Arbitration Association against Lucent Technologies, Inc. in or about December 2000. The arbitration arises out of an Agreement for the Purchase and Sale of Assets, dated October 2, 1998 (the "Asset Purchase Agreement"), among Bel Fuse Inc., Lucent Technologies, Inc. and Lucent Technologies Maquiladores, Inc., and a related Global Procurement Agreement, dated October 2, 1998 (the "Supply Agreement"), between Lucent Technologies, Inc., as Buyer, and Bel Fuse Inc., as Supplier. Pursuant to the Asset Purchase Agreement, the Company purchased substantially all of the assets of Lucent's signal transformer business. Pursuant to the Supply Agreement, Lucent agreed that except for limited instances where Lucent was obligated to purchase product elsewhere, for a term of 3 1/2 years, Lucent would be obligated, on an as required basis, to purchase from the Company all of Lucent's requirements for signal transformer products. The Supply Agreement also provided that the Company would be given the opportunity to furnish quotations for the sale of other products. The Company is seeking monetary damages for alleged breaches by Lucent of the Asset Purchase Agreement and the Supply Agreement. In its answer, Lucent denied many of the material allegations made by the Company and also asserted two counterclaims. The counterclaims seek recovery for alleged losses, including loss of revenue, sustained by Lucent as a result of the Company's alleged breach of various provisions of the Supply Agreement. The parties are currently engaged in extensive discovery proceedings. The Company believes it has substantial and meritorious claims against Lucent and substantial and meritorious defenses to Lucent's counterclaims. However, the Company cannot predict how the arbitrator will decide this matter and whether it will have a material effect on the Company's consolidated financial statements. c) The Company has received a letter from a third party which states that its patent covers certain of the Company's modular jack products and indicates the third party's willingness to grant a non-exclusive license to the Company under the patent. The Company believes that none of its products are covered by this particular patent. F-30
12. SUBSEQUENT EVENTS On December 15, 2002 the Company entered into a definitive agreement with Insilco Technologies, Inc. ("Insilco") for the purchase by the Company of certain assets, subject to certain liabilities, and common shares of entities comprising Insilco's passive component group for $35 million in cash plus the assumption of certain liabilities. On March 10, 2003 the Bankruptcy Court entered an order approving this agreement. This approval order authorizes Insilco to consummate the sale of assets and common shares of various entities of Insilco to the Company, subject to certain assumed liabilities and free and clear of all encumbrances on Insilco's U.S. operations. The Company closed on this acquisition on March 21, 2003. The Company financed the acquisition with a $10 million term loan (Note 11). On January 2, 2003 the Company entered into an asset purchase agreement with Advanced Power Components PLC ("APC") to purchase the communications products division of APC for $5.5 million in cash plus the assumption of certain liabilities. The Company will be required to make contingent purchase price payments equal to 5% of sales (as defined) in excess of $5.5 million per year for the years 2003 and 2004. The transactions will be accounted for using the purchase method of accounting and, accordingly, the results of operations of Insilco will be included in the Company's financial statements from March 21, 2003 and the results of operations of APC will be included the Company's financial statements from January 2, 2003. F-31
CONDENSED SELECTED QUARTERLY FINANCIAL DATA (Unaudited) Quarter Ended Total Year -------------------------------------------------------------------- Ended March 31, June 30, September 30, December 31, December 31, 2002 2002 2002 2002 (1) 2002 ------------ ------------ ------------- ------------ ------------ Net sales $ 16,514,002 $ 24,726,829 $ 27,401,089 $ 26,885,972 $ 95,527,892 Gross profit (loss) 2,153,379 6,180,774 6,254,195 8,519,324 23,107,672 Net earnings (loss) (1,820,576) 1,292,880 1,746,160 (639,467) 578,997 Earnings (loss) per share - basic (2) $ (0.17) $ 0.12 $ 0.16 $ (0.06) $ 0.05 Earnings (loss) per share - diluted (2) $ (0.17) $ 0.12 $ 0.16 $ (0.06) $ 0.05 Quarter Ended Total Year ------------------------------------------------------------------- Ended March 31, June 30, September 30, December 31, December 31, 2001 2001 (4) 2001 2001 (3) 2001 ------------ ------------ ------------ ------------ ------------- Net sales $ 33,703,785 $ 22,076,118 $ 23,291,790 $ 16,973,124 $ 96,044,817 Gross profit 13,432,220 (7,310,879) 4,350,224 (4,030,075) 6,441,490 Net earnings 7,576,682 (11,110,114) (400,294) (8,228,246) (12,161,972) Earnings per share - basic (2) $ 0.72 $ (1.04) $ (0.04) $ (0.77) $ (1.13) Earnings per share - diluted (2) $ 0.68 $ (1.04) $ (0.04) $ (0.77) $ (1.17) (1) During the fourth quarter of 2002, the Company recorded a goodwill impairment charge of $5,200,000 and reversed $1,900,000 of purchase commitment accruals which were settled on a favorable basis. Such accruals were established during the second quarter of 2001. (See note 4 below) (2) Quarterly amounts of earnings per share may not agree to the total for the year due to the use of potential common shares outstanding in computing diluted earnings per common share during the first quarter of 2001 and omitting potential common shares outstanding in computing loss per common share for the year ended 2001, as those shares would be antidilutive. (3) During the fourth quarter of 2001, management concluded that $700,000 of accruals, recorded in the fourth quarter of 2000, were no longer required. Such accruals, which related to its Far East operations, were reversed in the fourth quarter of 2001. (4) Includes a $14,600,00 charge consisting of inventory write-offs and estimated losses on non-cancellable purchase commitments. F-32
Item 9. Changes in and Disagreements with Accountants --------------------------------------------- on Accounting and Financial Disclosure -------------------------------------- None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2003 annual meeting of shareholders that is responsive to the information required with respect to this Item. Item 11. EXECUTIVE COMPENSATION The Registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2003 annual meeting of shareholders that is responsive to the information required with respect to this Item. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2003 annual meeting of shareholders that is responsive to the information required with respect to this Item. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2003 annual meeting of shareholders that is responsive to the information required with respect to this Item. -22-
Item 14. CONTROLS AND PROCEDURES Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the Company's principal executive officer and vice - president of finance have concluded that the Company's disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation and up to the filing date of this Annual Report on Form 10-K. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. 23
PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K --------------------------------------------------------------- Page ---- (a) Financial Statements 1. Financial statements filed as a part of this Annual Report on Form 10-K: Independent Auditors' Report F-1 Consolidated Balance Sheets as of December 31, 2002 and 2001 F-2 - F-3 Consolidated Statements of Operations for Each of the Three Years in the Period Ended December 31, 2002 F-4 Consolidated Statements of Stockholders' Equity for Each of the Three Years in the Period Ended December 31, 2002 F-5 - F-6 Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2002 F-7 - F-9 Notes to Consolidated Financial Statements F-10 - F-31 Selected Quarterly Financial Data - Years Ended December 31, 2002 and 2001 (Unaudited) F-32 2. Financial statement schedules filed as part of this report: Schedule II: Valuation and Qualifying Accounts S-1 All other schedules are omitted because they are inapplicable, not required or the information is included in the consolidated financial statements or notes thereto. (b) Reports on Form 8-K The Company did not file any current reports on Form 8-K during the three month period ended December 31, 2002. (c) Exhibits 3.1 Certificate of Incorporation, as amended, is incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 24
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) Exhibit No.: 3.2 By-laws, as amended, are hereby incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-2 (Registration No. 33-16703) filed with the Securities and Exchange Commission on August 25, 1987. 10.1 Agency agreement dated October 1, 1988 between Bel Fuse Ltd. and Rush Profit Ltd. Incorporated by reference to Exhibit 10.1 of the Company's annual report on Form 10-K for the year ended December 31, 1994. 10.2 Contract dated March 16, 1990 between Accessorios Electronicos (Bel Fuse Macau Ltd.) and the Government of Macau. Incorporated by reference to Exhibit 10.2 of the Company's annual report on Form 10-K for the year ended December 31, 1994. 10.3 Loan agreement dated February 14, 1990 between Bel Fuse, Ltd. (as lender) and Luen Fat Lee Electronic Factory (as borrower). Incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 10.4 Stock Option Plan. Incorporated by reference to Exhibit 28.1 of the Company's Registration Statement on Form S-8 (Registration No.333-89376) filed with the Securities and Exchange Commission on May 29,2002. 10.5 Employment agreement between Elliot Bernstein and Bel Fuse Inc. dated October 29, 1997. Incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 10.6 Stock and Asset Purchase Agreement among Bel Fuse Ltd, Bel Fuse Macau, L.P.A., Bel Connector, Inc. and Bel Transformer, Inc. and Insilco Technologies, Inc. and certain of its subsidiaries, dated as of December 31, 2002, as amended by Amendment No. 1, dated as of March 21, 2003, to Stock and Asset Purchase Agreement, among Bel Fuse Inc., Bel Fuse Ltd., Bel Fuse Macau, L.D.A., Bel Connector Inc. and Bel Transformer Inc. and Insilco Technologies, Inc. and Certain of its Subsidiaries. 10.7 Amended and Restated Credit and Guarantee Agreement, dated as of March 21, 2003, by and among Bel Fuse Inc., as Borrower, the Subsidiary Guarantors party thereto and The Bank of New York, as Lender. 25
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) Exhibit No.: 11.1 A statement regarding the computation of earnings per share is omitted because such computation can be clearly determined from the material contained in this Annual Report on Form 10-K. 22.1 Subsidiaries of the Registrant. 23.1 Consent of Independent Auditors. 99.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. 99.2 Certification of the Vice-President of Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 26
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. BEL FUSE INC. BY: /s/ Daniel Bernstein ------------------------------------------------ Daniel Bernstein, President, Chief Executive Officer and Director /s/ Colin Dunn ------------------------------------------------ Colin Dunn, Vice - President of Finance Dated: March 21, 2003 KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel Bernstein and Colin Dunn as his/her attorney-in-fact and agent, with full power of substitution and resubstitution, for him/her and in his/her name, place, and stead, in any and all capacities, to sign and file any and all amendments to this Annual Report on Form 10-K, with all exhibits thereto and hereto, and other documents with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she 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 substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ Daniel Bernstein President, Chief March 21, 2003 - -------------------- Executive Officer and Daniel Bernstein Director /s/ Howard B. Bernstein Director March 21, 2003 - ----------------------- Howard B. Bernstein 27
/s/ Robert H. Simandl Director March 21, 2003 - ----------------------- Robert H. Simandl /s/ Peter Gilbert Director March 21, 2003 - ----------------------- Peter Gilbert /s/ John Tweedy Director March 21, 2003 - ----------------------- John Tweedy /s/ John Johnson Director March 21, 2003 - ----------------------- John Johnson 28
I, Daniel Bernstein, certify that 1. I have reviewed this annual report on Form 10-K of Bel Fuse Inc; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 21, 2003 By: /s/ Daniel Bernstein ------------------------------- Daniel Bernstein, President and Chief Executive Officer
I, Colin Dunn, certify that 1. I have reviewed this annual report on Form 10-K of Bel Fuse Inc; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 21, 2003 By: /s/ Colin Dunn -------------------------- Colin Dunn, Vice President of Finance
BEL FUSE INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Additions ------------------------------------------------------------------------------------ Charged Charged Balance at to profit to other Balance beginning and loss accounts Deductions at close Description of period or income (describe) (describe) of period - ---------------------------- ---------- ------------ ------------ ----------- ----------- Year ended December 31, 2002 Allowance for doubtful accounts $ 945,000 $ $ -- $ $ 945,000 ========== =========== =========== =========== ========== Allowance for excess and obsolete inventory $2,988,000 $ 2,622,000 $ --(a) $ 2,474,000 $3,136,000 ========== =========== =========== =========== ========== Year ended December 31, 2001 Allowance for doubtful accounts $ 945,000 $ -- $ -- $ -- $ 945,000 ========== =========== =========== ========== Allowance for excess and obsolete inventory $2,847,000 $14,814,000 $ --(a) $14,673,000 $2,988,000 ========== =========== =========== =========== ========== Year ended December 31, 2000 Allowances for doubtful accounts $ 661,000 $ 1,454,000 $ --(a) $ 1,170,000 $ 945,000 ========== =========== =========== ========== Allowance for excess and obsolete inventory $1,542,000 $ 1,644,000 $ --(a) $ 339,000 $2,847,000 ========== =========== =========== =========== ========== S-1
EXHIBIT 10.61
================================================================================
STOCK AND ASSET PURCHASE AGREEMENT
AMONG
BEL FUSE LTD.,
BEL FUSE MACAU, L.D.A.
BEL CONNECTOR INC. AND
BEL TRANSFORMER INC.,
AND
INSILCO TECHNOLOGIES, INC.
AND
CERTAIN OF ITS SUBSIDIARIES
SET FORTH ON THE SIGNATURE PAGES HERETO
DATED AS OF DECEMBER 15, 2002
================================================================================
TABLE OF CONTENTS
-----------------
Page
----
EXECUTION COPY
--------------
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.............................................................................i
Section 1.2 Construction...........................................................................xi
ARTICLE II
PURCHASE AND SALE
Section 2.1 Purchase and Sale of the Shares.......................................................xii
Section 2.2 Purchase and Sale of Assets...........................................................xii
Section 2.3 Excluded Assets........................................................................xv
Section 2.4 Assumed Liabilities...................................................................xvi
Section 2.5 Excluded Liabilities.................................................................xvii
Section 2.6 Assumption of Certain Leases and Other Contracts.....................................xvii
ARTICLE III
PURCHASE PRICE
Section 3.1 Purchase Price........................................................................xix
Section 3.2 Purchase Price Adjustment.............................................................xix
ARTICLE IV
THE CLOSING
Section 4.1 Time and Place of Closing............................................................xxii
Section 4.2 Deliveries by the Sellers............................................................xxii
Section 4.3 Deliveries by the Buyers............................................................xxiii
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLERs
Section 5.1 Organization; Qualification of the Sellers...........................................xxiv
Section 5.2 Authority Relative to this Agreement.................................................xxiv
Section 5.3 Organization, Authority and Qualification of the Foreign Corporations.................xxv
Section 5.4 Capitalization; Ownership of Shares...................................................xxv
Section 5.5 Consents and Approvals; No Violation...............................................xxviii
Section 5.6 Financial Statements and Reports.....................................................xxix
Section 5.7 Title to Assets......................................................................xxix
Section 5.8 Owned Real Property...................................................................xxx
Section 5.9 Leased Real Property.................................................................xxxi
Section 5.10 Environmental Matters............................................................xxxii
Section 5.11 ERISA; Benefit Plans............................................................xxxiii
Section 5.12 Certain Contracts and Arrangements..............................................xxxvii
Section 5.13 Legal Proceedings and Judgments.................................................xxxvii
Section 5.14 Permits.........................................................................xxxvii
Section 5.15 Compliance with Laws...........................................................xxxviii
Section 5.16 Taxes..........................................................................xxxviii
Section 5.17 Intellectual Property............................................................xxxix
Section 5.18 Labor and Employment Matters........................................................xl
Section 5.19 Absence of Certain Developments....................................................xli
Section 5.20 Brokers............................................................................xli
Section 5.21 Accounts Receivable................................................................xli
Section 5.22 Inventory..........................................................................xli
Section 5.23 Insurance.........................................................................xlii
Section 5.24 Customers and Suppliers...........................................................xlii
Section 5.25 Operating Names...................................................................xlii
Section 5.26 Overlapping Assets................................................................xlii
Section 5.27 Exhibits & Schedules..............................................................xlii
Section 5.28 Disclaimer of Other Representations and Warranties...............................xliii
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BUYER
Section 6.1 Organization........................................................................xliii
Section 6.2 Authority Relative to this Agreement................................................xliii
Section 6.3 Consents and Approvals; No Violation................................................xliii
Section 6.4 Legal Proceedings and Judgments......................................................xliv
Section 6.5 Buyers' Financing....................................................................xliv
Section 6.6 Investment Purpose...................................................................xliv
ARTICLE VII
COVENANTS OF THE PARTIES
Section 7.1 Conduct of Business...............................................................xliv
Section 7.2 Access to Information; Maintenance of Records.....................................xlvi
Section 7.3 Expenses........................................................................xlviii
Section 7.4 Further Assurances..............................................................xlviii
Section 7.5 Public Statements.................................................................xlix
Section 7.6 Governmental Authority Consents and Approvals.....................................xlix
Section 7.7 Tax Matters..........................................................................l
Section 7.8 Employees..........................................................................lii
Section 7.9 Litigation Support.................................................................liv
Section 7.10 Notification.....................................................................lv
Section 7.11 Submission for Bankruptcy Court Approval.........................................lv
Section 7.12 Overbid Procedures...............................................................lv
Section 7.13 Collection of Receivables.......................................................lix
Section 7.14 Overlapping Assets..............................................................lix
ii
Section 7.15 Mail Received After the Closing....................................................lix
Section 7.16 Guarantees.........................................................................lix
Section 7.17 Sellers Guarantees.................................................................lix
Section 7.18 Glen Rock Facility..................................................................lx
ARTICLE VIII
CONDITIONS TO CLOSING
Section 8.1 Conditions to Each Party's Obligations to Effect the Closing........................lx
Section 8.2 Conditions to Obligations of the Buyers.............................................lx
Section 8.3 Conditions to Obligations of the Sellers..........................................lxii
ARTICLE IX
TERMINATION AND ABANDONMENT
Section 9.1 Termination......................................................................lxiii
Section 9.2 Procedure and Effect of Termination...............................................lxiv
Section 9.3 Liquidated Damages.................................................................lxv
Section 9.4 Extension; Waiver.................................................................lxvi
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 Amendment and Modification.....................................................lxvi
Section 10.2 Waiver of Compliance; Consents....................................................lxvi
Section 10.3 Survival..........................................................................lxvi
Section 10.4 No Impediment to Liquidation......................................................lxvi
Section 10.5 Notices..........................................................................lxvii
Section 10.6 Assignment.......................................................................lxvii
Section 10.7 Third-Party Beneficiaries.......................................................lxviii
Section 10.8 Severability....................................................................lxviii
Section 10.9 Governing Law...................................................................lxviii
Section 10.10 Submission to Jurisdiction......................................................lxviii
Section 10.11 Counterparts....................................................................lxviii
Section 10.12 Incorporation of Exhibits.........................................................lxix
Section 10.13 Entire Agreement..................................................................lxix
Section 10.14 Headings..........................................................................lxix
Section 10.15 Remedies..........................................................................lxix
Section 10.16 Bulk Sales or Transfer Laws.......................................................lxix
Section 10.17 WAIVER OF JURY TRIAL..............................................................lxix
EXHIBITS
- --------
Exhibit A Assumed Agreements
Exhibit B Form of Assumption Agreement
Exhibit C Form of Bill of Sale
Exhibit D Form of Bid Procedures Order
iii
Exhibit E Form of Approval Order
Exhibit F Form of Escrow Agreement
Exhibit G Form of Non-Competition Agreement
Exhibit H Form of Intellectual Property Assignment
Exhibit I-1 Form of Notice to Non-Bargaining Unit Employee
Exhibit I-2 Form of Notice to Chief Elected Officer of Each Labor
Organization
Exhibit I-3 Form of Notice to State Dislocated
Workers Unit
Exhibit I-4 Form of Notice to Chief Elected Official of Unit of Local
Government
Exhibit I-5 Form of WARN Cover Letter--PA and NY
Exhibit I-6 Form of WARN Cover Letter--CA Exhibit J Form of Share
Transfer and Assignment Agreement
DISCLOSURE SCHEDULE
- -------------------
The Disclosure Schedule shall include the following Schedules:
2.3(d) Excluded Assets--Claims 2.3(f) Additional Excluded Assets
5.4(a) Capitalization; Ownership of Shares--Insilco Technologies Germany
5.4(b) Capitalization; Ownership of Shares--Top East
5.4(c) Capitalization; Ownership of Shares--Stewart Connector Mexico
5.4(d) Capitalization; Ownership of Shares--ITI
5.4(e) Capitalization; Ownership of Shares--Sempco
5.4(f) Capitalization; Ownership of Shares--Signal Dominicana
5.4(g) Capitalization; Ownership of Shares--Signal Transformer Mexico
5.6(a) Financial Statements and Reports
5.8(a) Owned Real Property--List
5.8(b) Owned Real Property--Violations
5.8(d) Owned Real Property--Condemnation, Etc.
5.8(e) Owned Real Property--Other Violations
5.9(a) Leased Real Property--List
5.9(b) Leased Real Property--Leases and Subleases
5.10 Environmental Matters
5.11(a) ERISA; Benefit Plans--List
5.11(b) ERISA; Benefit Plans--Qualification
5.11(c) ERISA; Benefit Plans--Multi-employer Plans
5.11(f) ERISA; Benefits Plans--Reportable Events
5.11(g) ERISA; Benefit Plans--Sponsored Plans
5.11(h) ERISA; Benefit Plans--Obligations to Contribute to Multi-employer Plans
5.11(j) ERISA; Benefit Plans--Welfare Plans
5.11(k) ERISA; Benefit Plans--Obligations
5.11(m) ERISA; Benefit Plans--Other Obligations or Liabilities
5.11(o) ERISA; Benefit Plans--Foreign Plans
5.11(p) ERISA; Benefit Plans--Non-resident Beneficiaries
5.11(t) ERISA; Benefit Plans--Contributions
5.11(u) ERISA; Benefit Plans--Commitments to Create Plans
5.11(v) ERISA; Benefit Plans--Closings and Layoffs
iv
5.12 Certain Contracts and Arrangements
5.13 Legal Proceedings and Judgments
5.14 Permits
5.16 Taxes
5.17(a) Intellectual Property Rights--Copyrights, Patent Rights and Trademarks
5.17(b) Intellectual Property Rights--License Agreements
5.17(c) Intellectual Property Rights--Exceptions
5.18(a) Labor and Employment Matters--Collective Bargaining Agreements
5.18(b) Labor and Employment Matters--Employees; Policies and Manuals
5.23 Insurance
5.25 Operating Names
5.26 Overlapping Assets
7.1(a) Conduct of Business
7.1(b) Conduct of Business
v
STOCK AND ASSET PURCHASE AGREEMENT
This Stock and Asset Purchase Agreement (this "Agreement") is made as
of December 15, 2002 by and among Insilco Technologies, Inc., a Delaware
corporation ("Insilco"), Stewart Connector Systems, Inc., a Pennsylvania
corporation, InNet Technologies, Inc., a California corporation, Insilco
International Holdings, Inc., a Delaware corporation, Signal Caribe, Inc., a
Delaware corporation, Eyelets for Industry, Inc., a Connecticut corporation,
Stewart Stamping Corp., a Delaware corporation, and Signal Transformer Co.,
Inc., a Delaware corporation, (each, a "Selling Subsidiary"; and, collectively
with Insilco, the "Sellers" and each of the Sellers, a "Seller"), Bel Fuse Ltd.,
a Hong Kong corporation, Bel Fuse Macau, L.D.A., a Macau corporation, Bel
Connector Inc., a Delaware corporation, and Bel Transformer Inc., a Delaware
corporation, (each, a "Buyer"; and, collectively, the "Buyers").
WHEREAS, Insilco and the Selling Subsidiaries own all the issued and
outstanding equity securities (the "Shares") of each of Insilco Technologies
GmbH, a German corporation ("Insilco Technologies Germany"), Stewart Connector
Systems de Mexico, S.A. de C.V., a Mexican corporation ("Stewart Connector
Mexico"), Top East Corporation Limited, a Hong Kong corporation ("Top East"),
Insilco Technologies International, a Hong Kong corporation ("ITI"), Sempco,
S.A. de C.V., a Mexican corporation ("Sempco"), Signal Transformer Mexicana,
S.A. de C.V., a Mexican corporation ("Signal Transformer Mexico"), and Signal
Dominicana, S.A., a Dominican Republic corporation ("Signal Dominicana"; and,
collectively with Insilco Technologies Germany, Stewart Connector Mexico, Top
East, ITI, Sempco and Signal Transformer Mexico, the "Foreign Corporations" and
each of the Foreign Corporations, a "Foreign Corporation");
WHEREAS, the Sellers, directly and through the Foreign Corporations,
are engaged in the Business (as defined herein) at various locations around the
world; and
WHEREAS, the Sellers wish to sell to the Buyers, and the Buyers wish to
purchase from the Sellers, the Business, including the Shares and the Purchased
Assets (as defined herein), and in connection therewith the Buyers are willing
to assume from the Sellers all of the Assumed Liabilities (as defined herein),
all upon the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, intending to
be legally bound hereby and subject to the approval of the Bankruptcy Court as
provided for herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. (a) As used in this Agreement, the following
terms have the meanings specified in this Section 1.1(a).
"Accounts Payable" means (i) any and all accounts payable and current
liabilities which (A) arise after the Petition Date and (B) are owed by the
Business to third parties and (ii) any
accounts payable which (A) arise on or before the Petition Date and (B) are owed
by the Foreign Corporations to third parties, together (in all cases) with any
interest or unpaid financing charges accrued thereon.
"Accounts Receivable" means any and all accounts receivable, notes
receivable and other amounts receivable owed to the Business, together with any
interest or unpaid financing charges accrued thereon.
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Ancillary Agreements" means the Bill of Sale, the Assumption
Agreement, the Non-Competition Agreement, the Escrow Agreement and the
Intellectual Property Assignment.
"Approval Order" means an order or orders entered by the Bankruptcy
Court, to be submitted by the Sellers substantially in the form and substance of
the order attached hereto as Exhibit E approving this Agreement and the
Ancillary Agreements and all of the terms and conditions hereof and thereof, and
approving and authorizing the Sellers to consummate the transactions
contemplated hereby, including the sale of the Purchased Assets to the Buyers
pursuant to Sections 363(b) and 363(f) of the Bankruptcy Code free and clear of
all Encumbrances (other than Closing Encumbrances) and the sale of the Shares to
the Buyers pursuant to Sections 363(b) and 363(f) of the Bankruptcy Code free
and clear of all Encumbrances and authorizing the assumption and assignment of
the Assumed Agreements pursuant to Section 365 of the Bankruptcy Code.
"Assumed Agreements" means any contract, agreement, real or personal
property lease, commitment, understanding or instrument which primarily relates
to the Business, the Shares or the Purchased Assets and which is listed on
Exhibit A attached hereto.
"Assumption Agreement" means the assumption agreement to be executed
and delivered by the Buyers and the Sellers at the Closing, such agreement to be
substantially in the form and substance of Exhibit B attached hereto.
"Audit Accountant" means PricewaterhouseCoopers LLP.
"Bankruptcy Code" means Title 11 of the United States Code, 11 U.S.C.
ss.ss. 101, et seq.
"Bankruptcy Court" means the United States Bankruptcy Court for the
Southern District of New York or such other court having competent jurisdiction
over the Chapter 11 Cases.
"Bid Procedures Order" means an order or orders entered by the
Bankruptcy Court to be submitted by the Sellers substantially in the form and
substance of the order attached hereto as Exhibit D approving (i) the form and
manner of the notice of sale of assets contemplated by this Agreement, (ii)
bidding procedures, (iii) termination fees payable to the Buyers and (iv)
expense reimbursement in favor of the Buyers.
ii
"Bill of Sale" means the bill of sale to be executed and delivered by
the Sellers at the Closing, such bill of sale to be substantially in the form
and substance of Exhibit C attached hereto.
"Business" means the Seller Parties' passive components business (as
such business is generally described in Insilco Holding Co.'s Annual Report on
Form 10-K for the year ended December 31, 2001, as such description may have
changed in subsequent filings made by Insilco Holding Co. with the SEC prior to
the date hereof or as such description may change to reflect the transactions
contemplated hereby), including, without limitation, as conducted from the
Business Real Properties described in Schedule 5.8(a) and Schedule 5.9(a) of the
Disclosure Schedule, whether conducted under the name of Insilco or the name of
any of the Affiliates of Insilco.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banks are required or authorized by law to be closed in The City of
New York.
"Business Real Properties" means the Leased Real Property and the Owned
Real Property.
"Buyers' Representatives" means the Buyers' accountants, employees,
counsel, financial advisors and other authorized representatives.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended through the Closing Date.
"Chapter 11 Cases" means the Sellers' cases commenced under Chapter 11
of the Bankruptcy Code.
"Closing Encumbrances" means (i) statutory liens for current Taxes or
assessments not yet due or delinquent or the validity or amount of which is
being contested in good faith by appropriate proceedings, (ii) zoning,
entitlement, conservation restriction and other land use and environmental
regulations by governmental authorities which, individually or in the aggregate,
do not materially interfere with the present use or operation or materially
impact the value of the Purchased Assets or the Business, (iii) all exceptions,
restrictions, easements, charges, rights-of-way and other Encumbrances set forth
in any state, local or municipal franchise under which the Business is conducted
which, individually or in the aggregate, do not materially interfere with the
present use or operation or materially impact the value of the Purchased Assets
or the Business, and (iv) such other liens, imperfections in or failure of
title, charges, easements, rights-of-way, encroachments, exceptions,
restrictions and encumbrances which, when considered with the items referred to
in clauses (i), (ii) and (iii), do not materially interfere with the present use
or operation of the Purchased Assets or the Business or materially impact the
value of the Purchased Assets or the Business and neither secure indebtedness or
the payment of the deferred purchase price of property nor individually or in
the aggregate create a Material Adverse Effect.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended and set forth in Section 4980B of the Code and Part 6 of
Subtitle B of Title I of ERISA.
iii
"Code" means the Internal Revenue Code of 1986 (and the regulations
thereunder), as amended.
"Confidential Information" means the Information (as defined in the
Confidentiality Agreement) furnished to the Buyers' Representatives pursuant to
the Confidentiality Agreement and subject to the confidentiality provisions
thereof, and the confidential information relating to the Buyers provided to the
Sellers by the Buyers.
"Confidentiality Agreement" means the Confidentiality Agreement, dated
as of April 24, 2002, between Insilco Holding Co. and Bel Fuse, Inc.
"Copyrights" means all United States and foreign copyrights, whether
registered or unregistered, and pending applications to register the same, to
the extent that such copyrights and applications are owned by the Sellers and
primarily used in the Business.
"Creditors' Committee" means the official committee of unsecured
creditors appointed in connection with the Chapter 11 Cases.
"Disclosure Schedule" means the disclosure schedule attached hereto,
dated as of the date hereof, and forming a part of this Agreement.
"Employee Plan" means each employee benefit plan, program, arrangement
or contract (including, without limitation, any "employee benefit plan," as
defined in Section 3(3) of ERISA) maintained, sponsored, contributed to or
required to be contributed to by any Seller Party or any ERISA Affiliate for the
benefit of any current or former employee, officer or director thereof engaged
in the Business in the United States.
"Employee Records" means all existing personnel files related to
employees and former employees of the Business.
"Encumbrances" means any mortgages, pledges, liens, claims (as defined
in Section 101(5) of the Bankruptcy Code), charges, security interests,
conditional and installment sale agreements, activity and use limitations,
conservation easements, deed restrictions, encumbrances and charges of any kind.
"Environmental Laws" means all foreign, federal, state and local laws,
statutes, regulations, rules, ordinances, codes, decrees, judgments, or judicial
or administrative orders (i) relating to pollution (or the assessment,
investigation or cleanup thereof or the filing of information with respect
thereto), human health as such relates to exposure to Hazardous Substances, or
the protection of air, surface water, ground water, drinking water supply, land
(including land surface or subsurface), plant and animal life or any other
natural resource or (ii) concerning exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production or disposal of Hazardous Substances, in each case as amended through
the Closing Date. The term "Environmental Laws" includes: (A) CERCLA, the Clean
Air Act, 42 U.S.C.A. ss.ss. 7401, et seq., the Clean Water Act, 33 U.S.C.A.
ss.ss. 1251, et seq., the Solid Waste Disposal Act (including the Resource
Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste
Amendments of 1984), 42 U.S.C.A. ss.ss. 6901, et seq., the Toxic Substances
Control Act, 15 U.S.C.A. ss.ss. 2601, et seq., the Federal Insecticide,
iv
Fungicide, and Rodenticide Act, 7 U.S.C.A. ss.ss. 136, et seq., the Emergency
Planning and Community Right-To-Know Act of 1986, 42 U.S.C.A. ss.ss. 11001, et
seq., and the Occupational Safety and Health Act of 1970 (as such Act relates to
exposure to Hazardous Substances), 29 U.S.C.A. ss.ss. 51, et seq., each as
amended through the Closing Date; and (B) any common law (including negligence,
nuisance, trespass and strict liability) that may impose liability or
obligations for injuries or damages due to the presence of, exposure to, or
ingestion of, any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the regulations thereunder, as amended.
"ERISA Affiliate" means any entity required to be aggregated with any
Selling Party under Section 414 of the Code or Section 4001 of ERISA.
"Escrow Agent" means Bank of New York or such other financial
institution as shall be mutually acceptable to Insilco and the Buyers.
"Escrow Agreement" means an escrow agreement to be executed and
delivered by the Sellers, the Buyers and the Escrow Agent at the Closing, such
agreement to be substantially in the form and substance of Exhibit F attached
hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Subsidiaries" means all Subsidiaries of the Sellers other
than the Selling Subsidiaries and the Foreign Corporations.
"Glen Rock Agreement" means the Installment Sales Agreement, as
amended, between York County Industrial Development Corporation, a Pennsylvania
nonprofit corporation, and Stewart Connector Systems, Inc., a Pennsylvania
corporation, dated May 26, 1988.
"Glen Rock Property" means that property which is the subject of the
Glen Rock Agreement.
"Governmental Authority" means any United States or non-United States
federal, state, provincial, local or similar governmental, administrative or
regulatory authority, department, agency, commission or body, or judicial or
arbitral body.
"Hazardous Substances" means (i) any petrochemical or petroleum
products, oil, coal tar, or coal ash, radioactive materials, radon gas, asbestos
in any form that is or could become friable, urea formaldehyde foam insulation
or polychlorinated biphenyls, and (ii) any chemicals, materials or substances
defined as or included in the definition of "hazardous substances," "solid
wastes," "hazardous wastes," "hazardous materials," "restricted hazardous
materials," "extremely hazardous substances," "toxic substances," "contaminants"
or "pollutants" under any applicable Environmental Law.
"Intellectual Property" means all of the following property, rights or
interest owned by the Seller Parties, used primarily in the Business in any
jurisdiction throughout the world: (i) Patent Rights, (ii) Trademarks,
technology, product drawings, computer software (other than off-
v
the-shelf commercially available software), corporate names and data and
documentation (including electronic media), together with all goodwill
associated with each of the foregoing, (iii) Copyrights and copyrightable works,
(iv) registrations and applications for any of the foregoing and (v) trade
secrets, know-how, customer lists and confidential information; provided that
Intellectual Property shall not include the "Insilco" name, or any names similar
thereto, or logos or Trademarks related thereto.
"Intellectual Property Assignment" means an intellectual property
assignment to be executed and delivered by the Sellers and the Buyers at the
Closing, such assignment to be substantially in the form and substance of
Exhibit H attached hereto.
"Knowledge" means, as to a particular matter, the actual knowledge of
(i) with respect to the Buyers, the chief executive officer, the chief financial
officer and/or the general counsel, in each case, of Bel Fuse, Ltd., in each
case without independent investigation and (ii) with respect to the Sellers, the
chief executive officer, the chief financial officer and/or the general counsel,
in each case, of Insilco Holding Co., in each case without independent
investigation.
"Law" means any foreign or domestic federal, state, provincial, county,
municipal or local law, statute, ordinance, rule, regulation, directive, order,
writ, decree, injunction, judgment, stay, restraining order, permit, license,
registration, code, requirement or requirement of any Governmental Authority.
"Leased Real Property" means the real property leased or sub-leased by
the Seller Parties, as tenant or sub-tenant, that is primarily related to the
Business, together with, to the extent leased or sub-leased by the Seller
Parties primarily in connection with the Business, all buildings and other
structures, facilities or improvements currently or hereafter located thereon,
all fixtures, systems, equipment and items of personal property of the Seller
Parties (primarily related to the Business) attached or appurtenant thereto and
all easements, licenses, rights and appurtenances relating to the foregoing.
"Liability" means any debts, liabilities and obligations, whether
accrued or fixed, absolute or contingent, mature or unmature or determined or
determinable.
"Loss" means all Liabilities, losses, damages, claims, costs and
expenses, interest, awards, judgments and penalties (including, without
limitation, attorneys' and consultants' fees and expenses).
"Material Adverse Effect" means any change or changes in, or effect on,
the Business or the Purchased Assets that individually is, or in the aggregate
are, reasonably likely (i) to be materially adverse to the assets, business,
financial condition or results of operations of the Business, taken as a whole,
or (ii) to be materially adverse to the condition of the Purchased Assets and
the assets of the Foreign Corporations, taken as a whole, taking into account
the Sellers' status as a debtor under Chapter 11 of the Bankruptcy Code, other
than (i) any change or effect in any way resulting from or arising in connection
with the Chapter 11 Cases or this Agreement or any of the transactions
contemplated hereby (including any announcement with respect to the Chapter 11
Cases or this Agreement or any of the transactions contemplated hereby), (ii)
changes in (A) economic, regulatory or political conditions generally or (B)
general
vi
business, regulatory or economic conditions relating to any industries in which
the Sellers participates or (iii) any change in or effect on the Purchased
Assets or the Business which is cured (including by the payment of money) by
Insilco or any of its Affiliates before the Termination Date.
"Non-Competition Agreement" means a non-competition agreement to be
executed and delivered by the Sellers at the Closing, such agreement to be
substantially in the form and substance of Exhibit G attached hereto.
"Owned Real Property" means the real property owned by the Sellers that
is primarily related to the Business, together with all buildings and other
structures, facilities or improvements currently or hereafter located thereon,
all fixtures, systems, equipment and items of personal property of the Sellers
(primarily related to the Business) attached or appurtenant thereto and all
easements, licenses, rights and appurtenances relating to the foregoing.
"Patent Rights" means United States and foreign patents, patent
applications, including provisional applications, continuations,
continuations-in-part, divisions, reissues, patent disclosures, and inventions
(whether or not patentable or reduced to practice) or improvements thereto owned
by the Seller Parties and primarily used in the Business.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" means (i) statutory liens for current Taxes or
assessments not yet due or delinquent or the validity or amount of which is
being contested in good faith by appropriate proceedings, (ii) mechanics',
carriers', workers', repairers' and other similar liens arising or incurred in
the ordinary course of business relating to obligations as to which there is no
default on the part of the Seller Parties or the validity or amount of which is
being contested in good faith by appropriate proceedings, or pledges, deposits
or other liens securing the performance of bids, trade contracts, leases or
statutory obligations (including workers' compensation, unemployment insurance
or other social security legislation), (iii) zoning, entitlement, conservation
restriction and other land use and environmental regulations by governmental
authorities which, individually or in the aggregate, do not materially interfere
with the present use or operation of the Purchased Assets or the Business, (iv)
all exceptions, restrictions, easements, charges, rights-of-way and other
Encumbrances set forth in any state, local or municipal franchise under which
the Business is conducted which, individually or in the aggregate, do not
materially interfere with the present use or operation of the Purchased Assets
or the Business, (v) liens existing under the Prepetition Credit Agreement and
(vi) such other liens, imperfections in or failure of title, charges, easements,
rights-of-way, encroachments, exceptions, restrictions and encumbrances which do
not materially interfere with the present use or operation of the Purchased
Assets or the Business or materially impact the value of the Purchased Assets or
the Business and neither secure indebtedness or the payment of the deferred
purchase price of property, nor individually or in the aggregate create a
Material Adverse Effect.
"Person" means any individual, corporation, partnership, limited
partnership, limited liability company, syndicate, group, trust, association or
other organization or entity or government, political subdivision, agency or
instrumentality of a government.
vii
"Petition Date" means the date on which the Sellers file voluntary
petitions under Chapter 11 of the Bankruptcy Code, which shall be a date not
later than five (5) Business Days after the date of this Agreement.
"Pre-Closing Tax Period" means: (i) any Tax period ending on or before
the Closing Date; and (ii) with respect to a Tax period that commences before
but ends after the Closing Date, the portion of such period up to and including
the Closing Date.
"Prepetition Agent" means Bank One, NA.
"Prepetition Credit Agreement" means the Second Amended and Restated
Credit Agreement dated as of August 25, 2000, by and among Insilco, T.A.T.
Technology Inc., various financial institutions as lenders and Bank One, N.A. as
administrative agent.
"Sale Hearing" means the hearing at which the Bankruptcy Court
considers entry of the Approval Order.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Parties" means the Sellers and the Foreign Corporations.
"Seller Party" means a Seller or a Foreign Corporation.
"Sellers' Representatives" means the Sellers' accountants, employees,
counsel, financial advisors and other authorized representatives.
"Share Transfer and Assignment Agreement" means a share transfer and
assignment agreement to be executed and delivered on behalf of the
shareholder(s) of Insilco Technologies Germany and one of the Buyers at the
Closing, such agreement to be substantially in the form and substance of Exhibit
J attached hereto.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which the outstanding securities or equity interests having
ordinary voting power to elect a majority of the board of directors or other
Persons performing similar functions of such Person, corporation or other entity
are owned directly or indirectly by such other Person.
"Tax" or "Taxes" means all taxes, charges, fees, duties, levies,
penalties or other assessments of any kind or nature imposed by any Governmental
Authority, including income, net or gross receipts, excise, personal and real
property, sales, gain, use, license, custom duty, unemployment, capital stock,
transfer, franchise, payroll, withholding, social security, minimum estimated,
profit, gift, severance, value added, disability, premium, recapture, credit,
occupation, service, leasing, employment, stamp, add-on minimum, alternative,
intangible and other taxes, including interest, penalties or additions
attributable thereto or attributable to any failure to comply with any
requirement regarding Tax Returns.
viii
"Tax Return" means any return, report, claim for refund, information
return, declaration or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof, to be filed (whether on
a mandatory or elective basis) with any Governmental Authority.
"Trademarks" means all United States, state and foreign trademarks,
service marks, logos, trade dress, trade names and Internet domain names
(including all assumed or fictitious names under which the Business is
conducting its business or has within the previous five (5) years conducted its
business), whether registered or unregistered, and pending applications to
register the foregoing, owned by the Seller Parties and primarily used in the
Business.
"U.S. GAAP" means United States generally accepted accounting
principles in effect from time to time applied consistently throughout the
periods involved.
"WARN Act" means the Worker Adjustment and Retraining Notification Act
of 1988 (or any state or local equivalent), as amended.
(b) Each of the terms set forth below shall have the meaning ascribed thereto in
the following section:
Definition Location
---------- --------
"Accounts" ss. 5.24
--------
"Accounts Payable Amount" ss. 3.2(c)
-----------------------
"Accounts Receivable Amount" ss. 3.2(c)
--------------------------
"Affected Property" ss. 5.10(h)
-----------------
"Agreement" Preamble
---------
"Allocation" ss. 7.7(e)
----------
"Arbiter" ss. 3.2(d)
-------
"Assumed Liabilities" ss. 2.4
-------------------
"Auction" ss. 7.12(b)
-------
"Auction Date" ss. 7.12(b)
------------
"Auction Sale" ss. 7.12(c)
------------
"Audited Financial Statements" ss. 8.2(i)
----------------------------
"Backup Bid" ss. 7.12(a)(iii)
----------
"Backup Bidder" ss. 7.12(a)(iii)
-------------
"Balance Sheet" ss. 5.6(a)
-------------
"Benchmark Working Capital Amount" ss. 3.2(e)
--------------------------------
"Bid Deadline" ss. 7.12(a)(i)
------------
"Buyer(s)" Preamble
--------
"Buyers' Overlapping Assets" ss. 5.26
--------------------------
"Cash Price" ss. 3.1
----------
"Cause" ss. 7.8(j)
-----
"Closing" ss. 4.1
-------
"Closing Date" ss. 4.1
------------
"Cure Amount Ceiling" ss. 2.6(b)
-------------------
"Cure Amount Payment" ss. 2.6(b)
-------------------
ix
Definition Location
---------- --------
"Cure Amounts" ss. 2.6(b)
------------
"Deposit" ss. 7.12(a)(iii)
-------
"Disputed Items" ss. 3.2(d)
--------------
"Employee Agreements" ss. 7.8(i)
-------------------
"Environmental Permits" ss. 5.10(a)
---------------------
"Escrowed Amount" ss. 3.1
---------------
"Estimated Accounts Payable Amount" ss. 3.2(a)
---------------------------------
"Estimated Accounts Receivable Amount" ss. 3.2(a)
------------------------------------
"Estimated Accounts Report" ss. 3.2(a)
-------------------------
"Estimated Foreign Corporation Closing Liabilities" ss. 3.2(c)
-------------------------------------------------
"Estimated Inventory Amount" ss. 3.2(b)
--------------------------
"Estimated Working Capital Amount" ss. 3.2(c)
--------------------------------
"Excluded Assets" ss. 2.3
---------------
"Excluded Liabilities" ss. 2.5
--------------------
"Expense Reimbursement" ss. 7.12(c)
---------------------
"Final Working Capital Amount" ss. 3.2(d)
----------------------------
"Financial Statements" ss. 5.6(a)
--------------------
"Foreign Corporation Closing Liabilities" ss. 3.2(c)
---------------------------------------
"Foreign Corporation(s)" Recitals
----------------------
"Foreign Corporation Employee" ss. 7.8(a)
----------------------------
"Foreign Plans" ss. 5.11(o)
-------------
"Insilco" Preamble
-------
"Insilco Technologies Germany" Recitals
----------------------------
"Insilco Technologies Germany Shares" ss. 5.4(a)
-----------------------------------
"Inventory" ss. 2.2(a)
---------
"Inventory Amount" ss. 3.2(c)
----------------
"Inventory Date" ss. 3.2(b)
--------------
"Inventory Determination" ss. 3.2(b)
-----------------------
"ITI" Recitals
---
"ITI Shares" ss. 5.4(d)
----------
"License Agreements" ss. 5.17(b)
------------------
"Marked Agreement" ss. 7.12(a)(ii)
----------------
"Material Agreements" ss. 5.12
-------------------
"Operating Names" ss. 5.25
---------------
"Options" ss. 5.9(b)
-------
"Overbid Procedures" ss. 7.12
------------------
"Overbids" ss. 7.12(a)
--------
"Permits" ss. 5.14(a)
-------
"Purchase Price" ss. 3.1
--------------
"Purchased Assets" ss. 2.2
----------------
"Qualified Bid" ss. 7.12(a)(ii)
-------------
"Regulatory Approvals" ss. 7.6(a)
--------------------
"Resolution Period" ss. 3.2(d)
-----------------
"Retained Employee" ss. 7.8(a)
-----------------
x
Definition Location
---------- --------
"Retained Employee Payment Amount" ss. 7.8(j)
--------------------------------
"Seller(s)" Preamble
---------
"Sellers' Estimated Closing Report" ss. 3.2(c)
---------------------------------
"Sellers' Overlapping Assets" ss. 5.26
---------------------------
"Sellers' Retained Business" ss. 5.26
--------------------------
"Selling Subsidiary" Preamble
------------------
"Sempco" Recitals
------
"Sempco Shares" ss. 5.4(e)
-------------
"Shares" Recitals
------
"Signal Dominicana" Recitals
-----------------
"Signal Dominicana Shares" ss. 5.4(f)
------------------------
"Signal Transformer Mexico" Recitals
-------------------------
"Signal Transformer Mexico Shares" ss. 5.4(g)
--------------------------------
"Stewart Connector Mexico" Recitals
------------------------
"Stewart Connector Mexico Shares" ss. 5.4(c)
-------------------------------
"Successful Bid" ss. 7.12(a)(iii)
--------------
"Successful Bidder" ss. 7.12(a)(iii)
-----------------
"Termination Date" ss. 9.1(h)
----------------
"Third-Party Sale" ss. 9.1(f)
----------------
"Top East" Recitals
--------
"Top East Shares" ss. 5.4(b)
---------------
"Topping Fee" ss. 7.12(c)
-----------
"Transfer Taxes" ss. 7.7(b)
--------------
"Transferable Permits" ss. 2.2(f)
--------------------
"Transferred Employee" ss. 7.8(a)
--------------------
"Unaudited Annual Financial Statements" ss. 5.6(a)
-------------------------------------
"WARN Notices" ss. 7.8(e)
------------
"WC Objection" ss. 3.2(d)
------------
"Welfare Plan" ss. 5.11(j)
------------
Section 1.2 Construction. The terms "hereby," "hereto," "hereunder" and
any similar terms as used in this Agreement, refer to this Agreement in its
entirety and not only to the particular portion of this Agreement where the term
is used. The term "including", when used herein without the qualifier, "without
limitation," shall mean "including, without limitation." Wherever in this
Agreement the singular number is used, the same shall include the plural, and
the masculine gender shall include the feminine and neuter genders, and vice
versa, as the context shall require. The word "or" shall not be construed to be
exclusive. Provisions shall apply, when appropriate, to successive events and
transactions. All references to "$" are to United States Dollars.
xi
ARTICLE II
PURCHASE AND SALE
Section 2.1 Purchase and Sale of the Shares. Upon the terms and subject
to the conditions contained in this Agreement (including the entry of the
Approval Order), at the Closing, the Sellers shall sell the Shares to the
Buyers, and the Buyers shall, by payment of the Purchase Price, purchase and
acquire the Shares from the Sellers, free and clear of all Encumbrances.
Section 2.2 Purchase and Sale of Assets. Except for the Excluded
Assets, upon the terms and subject to the conditions contained in this Agreement
(including the entry of the Approval Order), at the Closing, the Sellers shall
sell, assign, convey, transfer and deliver to the Buyers, and the Buyers shall,
by payment of the Purchase Price, purchase and acquire from the Sellers, free
and clear of all Encumbrances (except for Closing Encumbrances), all of the
right, title and interest that the Sellers possess as of the Closing in, to and
under the real, personal, tangible and intangible property and assets of every
kind and description, wherever located, used, developed for use or intended for
use primarily in the conduct of the Business and related thereto and all other
assets of the Sellers related to the Business unless specifically excluded in
Section 2.3 (collectively, the "Purchased Assets"). Without limiting the effect
of the foregoing, the parties hereto acknowledge and agree that the Purchased
Assets shall include all right, title and interest of the Sellers in, to and
under all of the following assets primarily relating to the Business (except the
Excluded Assets):
(a) all raw materials, work in process, finished goods and
packaging materials, samples and other materials generally included in
the inventory of the Business in accordance with U.S. GAAP (the
"Inventory");
(b) all equipment;
(c) all machinery, vehicles, furniture and other tangible
personal property;
(d) all of the Accounts Receivable outstanding as of the
Closing Date;
(e) the Assumed Agreements, in each case, to the extent the
same are assignable as "executory contracts" under Section 365 of the
Bankruptcy Code or to the extent assignment is consented to by the
third party or third parties to such agreements, if required, including
any and all deposits and letters of credit related to any such Assumed
Agreements;
(f) the Permits, in each case, to the extent the same are
assignable (the "Transferable Permits");
(g) to the extent assignable as "executory contracts" under
Section 365 of the Bankruptcy Code or to the extent assignment is
consented to by the third party or third parties to such agreements, if
required, all License Agreements and all confidentiality, noncompete,
non-disparagement or nondisclosure agreements executed by vendors,
suppliers or employees of the Sellers or other third parties, in each
case, primarily relating to the Business;
xii
(h) originals or copies of all Employee Records of the Sellers
in respect of employees of the Business who become Transferred
Employees or who are employees of the Foreign Corporations;
(i) except as set forth on Schedule 2.3(d) of the Disclosure
Schedule and subject to Section 2.3(d), all of the rights, claims or
causes of action of the Sellers against any third party primarily
related to the Purchased Assets, the operation of the Business or the
Assumed Liabilities or Assumed Agreements arising out of transactions
occurring prior to the Closing Date, except where such rights, claims
or causes of action relate to Excluded Liabilities; to the extent such
rights, claims or causes of action relate to both Assumed Liabilities
and Excluded Liabilities, the Buyers and the Sellers shall share such
rights, claims or causes of action in the same proportion as their
respective liabilities bear to the total liability relating to those
rights, claims or causes of action;
(j) to the extent assignable under Section 365 of the
Bankruptcy Code, all Intellectual Property, together with all related
income, royalties, damages and payments due or payable at the Closing
or thereafter (including damages and payments for past or future
infringements or misappropriations thereof), the right to sue and
recover for past infringements or misappropriations thereof, any and
all corresponding rights that, now or hereafter, may be secured
throughout the world and all copies and tangible embodiments of any
such Intellectual Property;
(k) (i) to the extent assignable under Section 365 of the
Bankruptcy Code or to the extent consented to by the insurance
providers, if required, the rights of the Sellers pertaining primarily
to the Business under those insurance policies which primarily cover
risks covering the Business or the Purchased Assets, together with any
rights to insurance proceeds from any insurance policies owned by the
Sellers and pertaining primarily to the Business, other than insurance
proceeds from insurance policies for workers' compensation, director
and officer liability and fiduciary liability; provided that to the
extent that the rights to such insurance proceeds relate to a claim
against the Sellers that is not an Assumed Liability and is not a
Liability of the Foreign Corporations, the Sellers shall retain the
rights to such insurance proceeds and the Sellers shall not transfer
the rights to such insurance proceeds to the Buyers and (ii) any
proceeds from any insurance policies relating to claims arising after
the date hereof relating to the business of the Foreign Corporations;
(l) all rights under all accounts of the customers of the
Business which, at the Closing Date, are users of any of the services
or purchasers of any of the products provided by the Sellers in the
operation of the Business, including all rights under any contracts or
agreements relating to such accounts to the extent such contracts or
agreements are assignable as "executory contracts" under Section 365 of
the Bankruptcy Code or to the extent consented to by the third party or
third parties to such contracts or agreements;
(m) all evidences of indebtedness or other interests issued by
any Person other than any Seller Party or any Affiliate thereof and
owned by any of the Sellers primarily in connection with the Business;
xiii
(n) the Owned Real Property;
(o) all (i) brochures, catalogues, literature, forms,
advertising materials and media primarily relating to the Business
which are located at the Business Real Properties and (ii) sales data,
mailing lists and the content on the Sellers' respective websites
primarily used in the Business;
(p) to the extent transferable, all rights of the Sellers in
and to all telephone, telefax and data numbers primarily used in the
Business;
(q) the full benefit of all warranties, warranty rights,
performance bonds and indemnities (except for indemnities related to
any litigation that the Seller Parties are involved in) which apply to
any of the Purchased Assets;
(r) all rights of the Sellers in products in development
primarily used in or relating to the Business;
(s) all rights of the Sellers under any purchase orders for
products or merchandise to be sold by the Sellers in respect of the
Business which arise in the ordinary course of business to the extent
outstanding as of the Closing Date;
(t) all of the Sellers' rights to easements, rights of way,
variances, conditional uses, nonconforming uses, servitudes, leases,
licenses, privileges and options, which rights are primarily used, held
by or relating or appurtenant to the Business, the Business Real
Properties or any real estate lease primarily relating to the Business
to which any of the Sellers is a party (provided such real estate lease
is within the definition of the phrase "executory contracts" as defined
under Section 365 of the Bankruptcy Code), in each case, to the extent
that such rights are transferable;
(u) (i) all security deposits and other forms of security for
the performance of any agreements which constitute a portion of the
Purchased Assets, (ii) all refundable security deposits and prepaid
expenses relating to the Purchased Assets and (iii) any sums deposited,
escrowed or otherwise set aside by or on behalf of any Seller Party in
compliance with Law as a result of or in connection with any Assumed
Liability;
(v) any Tax refund payable to or paid to any Foreign
Corporation after the date hereof;
(w) all system passwords, resets, encryption technology,
archives, log files, engineering designs, software agreements, software
configurations, source codes and object codes maintained by the Sellers
primarily relating to the Business; and
(x) all other assets owned by the Sellers and related primarily
to the Business, whether or not reflected on the books and records of
any of the Seller Parties, all books, records, ledgers, data and
information, files, documents and correspondence primarily relating to
the Business, all regulatory filings primarily relating to the rates
and services provided by the Sellers in connection with the operation
of the Business, all general, financial and accounting records, sales
correspondence, customer lists, credit and sales
xiv
records, purchasing records, data processing records, copies of all
documents and records primarily relating to the Purchased Assets,
outstanding or uncollected sales orders and sales order log books,
correspondence records with respect to customers and supply sources,
and all papers primarily relating to, or necessary to the conduct of,
the Business, including drawings, engineering, manufacturing and
assembly information, operating and training manuals, manuals and data,
catalogs, quotations, bids, sales and promotional materials, research
and development records, prototypes and models, lists of present and
former suppliers, customer credit information, customers' pricing
information, plans, studies and analyses, whether prepared by any of
the Seller Parties or a third party, primarily relating to the
Business.
Section 2.3 Excluded Assets. Notwithstanding any provision herein to
the contrary, the Sellers shall not sell, convey, assign, transfer or deliver to
the Buyers, and the Buyers shall not purchase, and the Purchased Assets shall
not include, the Sellers' right, title and interest in and to the following
assets of the Sellers (the "Excluded Assets"):
(a) cash (including all cash residing in any collateral cash
account securing any obligation or contingent obligation of the
Sellers), cash equivalents and bank deposits, subject to the Buyers'
rights under Section 2.2(u) and Section 2.2(v), and any amount of
indebtedness for borrowed money owed by an Affiliate of any Seller to
any Seller Party;
(b) any equity interests held by the Sellers other than the
Shares;
(c) rights to (i) any Tax refunds relating to the Business or
the Purchased Assets that are attributable to any Pre-Closing Tax
Period, whether such refund is received as a payment or as a credit
against future Taxes and (ii) any net operating losses relating to the
Business or the Purchased Assets; provided, however, that any Tax
refund that is payable to or paid to any Foreign Corporation after the
date hereof and any net operating loss carryforward usable by any
Foreign Corporation shall not be deemed an Excluded Asset.
(d) the Sellers' claims, causes of action, choses in action and
rights of recovery pursuant to Sections 544 through 550 and Section 553
of the Bankruptcy Code, any other avoidance actions under any other
applicable provisions of the Bankruptcy Code and the claims, causes of
action, choses in action and rights of recovery set forth on Schedule
2.3(d) of the Disclosure Schedule;
(e) subject to Section 7.2(c), the corporate charter,
qualifications to conduct business as a foreign corporation,
arrangements with registered agents relating to foreign qualifications,
taxpayer and other identification numbers, seals, minute books, stock
transfer books, blank stock certificates, and other documents relating
to the organization, maintenance, and existence of the Sellers as
corporations, and, except as contemplated by Section 2.2(x), any books,
records or the like of the Sellers;
(f) all of the assets set forth on Schedule 2.3(f) of the
Disclosure Schedule;
(g) the "Insilco" name, or any names similar thereto, or logos,
trade names, service marks or Trademarks related thereto;
xv
(h) all of the agreements to which any of the Seller Parties is
a party which are not Assumed Agreements or License Agreements and any
and all customer deposits, customer advances and credits and security
deposits related to any such agreements which are not Assumed
Agreements or License Agreements;
(i) the rights of the Sellers under this Agreement and the
Ancillary Agreements;
(j) all of the real, personal, tangible or intangible property
(including Intellectual Property) or assets owned by the Excluded
Subsidiaries except to the extent that such property or assets primarily
relate to the Business;
(k) any and all assets of any Seller or an Affiliate of any
Seller primarily related to the custom assemblies or precision
stampings business segments operated by Insilco and its Subsidiaries,
including, without limitation, Sellers' Overlapping Assets;
(l) any and all amounts or other obligations owing to any
Seller Party by Insilco Holding Co. or any Affiliate of Insilco Holding
Co.;
(m) any and all prepaid workers' compensation premiums (other
than with respect to individuals who become Transferred Employees or
who are employees of the Foreign Corporations);
(n) claims against current or former directors, officers or
other employees of, or agents, accountants or other advisors of or to,
the Sellers;
(o) all Employee Records in respect of employees of the
Business who do not become Transferred Employees and who are not
employees of the Foreign Corporations; and
(p) any insurance policies and proceeds not included as
Purchased Assets pursuant to Section 2.2(k).
Section 2.4 Assumed Liabilities. Except for the Excluded Liabilities,
upon the terms and subject to the satisfaction of the conditions contained in
this Agreement (and subject to the entry of the Approval Order), on the Closing
Date, the Buyers shall execute and deliver to the Sellers the Assumption
Agreement pursuant to which the Buyers shall assume and agree to pay, perform
and discharge when due the following liabilities and obligations of the Sellers
(the "Assumed Liabilities"), in accordance with the respective terms and subject
to the respective conditions thereof:
(a) liabilities and obligations of the Sellers under the
Assumed Agreements, the License Agreements (to the extent assigned) and
the Transferable Permits in accordance with the terms thereof for
periods occurring after the Closing Date;
(b) the liabilities and obligations relating to (i) any
customer deposits and customer advances and credits, (ii) the security
deposits and (iii) letters of credit or similar instruments securing
customer deposits, advances or credits, in all such cases only with
respect to customer accounts which are assigned to the Buyers and only
with respect
xvi
to dollar amounts (if they exceed $25,000 in the aggregate) disclosed
to the Buyers within two (2) Business Days prior to the Closing;
provided, however, that to the extent that such liabilities and
obligations exceed $25,000 in the aggregate, then such liabilities and
obligations in excess of $25,000 in the aggregate shall be assumed by
the Buyers only to the extent that the Cash Price is reduced, prior to
the consummation of the Closing, by such excess amount;
(c) liabilities and obligations assumed by, or allocated to,
the Buyers pursuant to Section 7.7;
(d) all of the liabilities and obligations of the Sellers
allocated to the Buyers pursuant to Section 7.8;
(e) all of the Accounts Payable other than the Accounts Payable
of the Foreign Corporations (it being agreed that the Accounts Payable
of the Foreign Corporations shall continue to be the obligations of the
Foreign Corporations after the Closing and not obligations of the
Sellers) ; and
(f) all liabilities and obligations related to the Purchased
Assets, the Shares or the Business arising from any actions or
omissions occurring after the Closing Date.
Section 2.5 Excluded Liabilities. NOTWITHSTANDING ANY PROVISION HEREIN
TO THE CONTRARY, THE BUYERS SHALL NOT ASSUME OR BE OBLIGATED TO PAY, PERFORM OR
DISCHARGE ANY LIABILITIES OR OBLIGATIONS OF THE SELLERS OTHER THAN THE ASSUMED
LIABILITIES (ALL LIABILITIES AND OBLIGATIONS OTHER THAN THE ASSUMED LIABILITIES
ARE REFERRED TO HEREIN AS THE "EXCLUDED LIABILITIES"). The Excluded Liabilities
include (a) all liabilities that the Sellers may have with respect to the
underfunding of any Employee Plan relating to the Business, (b) all guarantees
by any Seller of the Liabilities of Insilco or any of its Affiliates other than
as specified in Section 7.17 and (c) all Taxes of the Sellers attributable to
the Purchased Assets and the Business with respect to any Pre-Closing Tax
Period, provided that, for this purpose, with respect to any such Taxes that are
payable with respect to a taxable period that begins before the Closing Date and
that ends after the Closing Date (but excluding for the avoidance of doubt, any
Taxes referred to and governed by Section 7.7(b)), the portion of such Taxes
allocable to the portion of such taxable period ending on the Closing Date shall
be considered to equal the amount of such Taxes for such taxable period,
multiplied by a fraction, the numerator of which of which is the number of days
in the portion of such taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire taxable period.
Section 2.6 Assumption of Certain Leases and Other Contracts. The
Approval Order shall provide for the assumption by the Sellers and assignment to
the Buyers, effective upon the Closing, of the Assumed Agreements on the
following terms and conditions:
(a) At the Closing, the Sellers shall assume and assign to the
Buyers the Assumed Agreements. The Assumed Agreements are listed on
Exhibit A hereto. Simultaneously with delivery of cure amount notices
(in accordance with the terms of the Bid Procedures
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Order) to the other party or parties to the Assumed Agreements, Sellers
shall deliver a copy of such cure amount notices to Buyers (such
notices to include the estimated amounts necessary to cure monetary and
non-monetary defaults, if any, under each of such Assumed Agreements as
determined by the Sellers based on the Sellers' books and records, the
date of the Assumed Agreement (if available), the other party or
parties to the Assumed Agreement and the address of such party or
parties, as the case may be). From and after the date hereof until
three (3) Business Days prior to the commencement of the Sale Hearing,
the Sellers shall make such additions and deletions to the list of the
Assumed Agreements as the Buyers shall request and the Sellers shall
give prompt notice of any such addition or deletion to the respective
counsels to the Prepetition Agent and the Creditors' Committee, and to
the third parties to each such executory contract added to or deleted
from the list of the Assumed Agreements.
(b) If Insilco advises the Buyers at or prior to the Closing
Date that there exists on the Closing Date any defaults under the
Assumed Agreements, the Buyers shall be responsible for (i) the first
$150,000 (the "Cure Amount Ceiling") of Cure Amounts (as defined below)
associated with personal property leases and/or real estate leases
constituting Assumed Agreements and (ii) all other Cure Amounts under
all other Assumed Agreements. At the Closing, the Buyers shall provide
funds to the Sellers (by wire transfer of immediately available U.S.
funds) in an amount equal to (i) with respect to the Assumed Agreements
which are personal property leases and/or real estate leases, the
lesser of the aggregate Cure Amounts for such Assumed Agreements and
the Cure Amount Ceiling plus (ii) with respect to all other Assumed
Agreements, the aggregate Cure Amounts for such Assumed Agreements (the
aggregate amount of clauses (i) and (ii) being the "Cure Amount
Payment"). Promptly (and in any event by the end of the next Business
Day) upon receipt by the Sellers of the Cure Amount Payment and the
Purchase Price at the Closing, the Sellers shall pay all Cure Amounts
for all Assumed Agreements. The Sellers, jointly and severally, shall
be responsible for paying all Cure Amounts and shall pay such Cure
Amounts from, and promptly (and in any event, by the end of the next
Business Day) upon receipt of, such funds and the Purchase Price. For
purposes of this Agreement, "Cure Amount" means any and all amounts to
be cured pursuant to Section 365(a) of the Bankruptcy Code as a
condition to the assumption and assignment of such Assumed Agreements.
(c) The Buyers shall be solely responsible for any and all
costs and expenses necessary in connection with providing adequate
assurance of future performance, i.e., for periods after the Closing
Date, with respect to any of the Assumed Agreements under Section 365
of the Bankruptcy Code.
(d) In addition to the payment of the Purchase Price and the
payment of the Cure Amounts and expenses referred to in clause (c)
above, on the Closing Date, the Buyers shall reimburse the Sellers in
cash and in full for any and all postpetition deposits, advances,
credits and security deposits and replace any letters of credit, in all
such cases, related to any agreements of the Sellers with third parties
transferred to the Buyers pursuant to Section 2.2; provided, however,
the Buyers shall not be obligated to reimburse the Sellers for any
postpetition deposits, advances, credits and security deposits or be
obligated to replace any postpetition letters of credit in the event
that, prior
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to the Closing Date, (i) the Sellers fail to provide the Buyers with
copies of written postpetition correspondence which evidences that a
third party required the Sellers to provide such third party with such
deposit, advance, credit, security deposit or letter of credit, (ii)
the Sellers fail to provide the Buyers written evidence that the
Sellers delivered such deposit, advance, credit, security deposit or
secured a letter of credit to/on behalf of such third party or (iii)
the Buyers make a reasonable good faith determination that (y) the
Buyers will not be entitled to the return of, recover or otherwise use
for their benefit any such deposit, advance, credit or security deposit
and/or (z) the Buyers will be required to secure a replacement letter
of credit, as applicable.
ARTICLE III
PURCHASE PRICE
Section 3.1 Purchase Price. In consideration for the Shares and the
Purchased Assets, and subject to the terms and conditions of this Agreement and
the entry of the Approval Order, at the Closing the Buyers shall (a) assume the
Assumed Liabilities as provided in Section 2.4, (b) pay one million dollars
($1,000,000) to the Escrow Agent to be held and disbursed pursuant to the terms
of the Escrow Agreement (the "Escrowed Amount"), (c) pay to the Sellers (in
immediately available funds, by wire transfer to an account or accounts
designated by Insilco) the Cure Amount Payment and (d) pay to the Sellers, in
immediately available funds, by wire transfer to an account or accounts
designated by Insilco, an amount in cash equal to thirty five million dollars
($35,000,000) less the Escrowed Amount (the "Cash Price"). The sum of the Cure
Amount Payment, the Escrowed Amount and the Cash Price, as same may be adjusted
(i) downward pursuant to Section 2.4(b), (ii) upward pursuant to Section 2.6(d)
and (iii) upward or downward pursuant to Section 3.2, is referred to herein as
the "Purchase Price."
Section 3.2 Purchase Price Adjustment. (a) Delivery of Estimated
Accounts Report. At least two (2) Business Days prior to the Closing, the
Sellers shall deliver to the Buyers a report reflecting the Sellers' good faith
estimate of all of the Accounts Receivable and the Accounts Payable as of the
Closing Date (the "Estimated Accounts Report"). The Estimated Accounts Report
shall (i) identify the dollar amount of each Account Receivable and Account
Payable, (ii) identify the entity to which each Account Receivable and Account
Payable pertains, (iii) exclude Accounts Receivable and Accounts Payable due to
any of the Sellers from any of the other Seller Parties or from any Affiliate of
any of the Sellers and (iv) include an aging schedule for each Account
Receivable reflecting, as of the Closing Date, the aggregate amount of the
Accounts Receivable outstanding that: (A) would not be past due; (B) would be
past due 30 days or less; (C) would be past due more than 30 days but less than
or equal to 60 days; and (D) would be past due more than 60 days. The aggregate
dollar value of the Accounts Receivable and Accounts Payable evidenced on the
Estimated Accounts Report shall be determined in a manner consistent with U.S.
GAAP and the determination of the value of Accounts Receivable and Accounts
Payable in the Financial Statements and shall be referred to herein as the
"Estimated Accounts Receivable Amount" and the "Estimated Accounts Payable
Amount", as applicable.
(b) Taking of Inventory; Inventory Report. Prior to the date
hereof, the Buyers' accountants and Insilco's accountants have taken a
joint physical inventory of the Inventory,
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wherever located (the "Inventory Determination"). Prior to Closing,
Insilco shall update the Inventory Determination through a date as near
to the Closing Date as practicable (the "Inventory Date"), through
application of methodologies and procedures consistent with the
Sellers' past practices of inventory determination utilized in the
preparation of the Financial Statements. The Sellers shall prepare a
report setting forth the aggregate value of the Inventory of the
Business as of the Inventory Date (the "Estimated Inventory Amount"),
determined in accordance with the procedures set forth above.
(c) Closing Report. On the second (2nd) Business Day prior to
the Closing, the Sellers shall deliver to the Buyers a report
("Sellers' Estimated Closing Report") which identifies (i) the
Estimated Accounts Receivable Amount, (ii) the Estimated Inventory
Amount, (iii) the Estimated Accounts Payable Amount and (iv) the
Sellers' estimate of all Liabilities of the Foreign Corporations (other
than Accounts Payable and Liabilities for Taxes) as of the Closing Date
but only to the extent that such Liabilities are required to be
reflected on a balance sheet prepared in accordance with U.S. GAAP and
in a manner consistent with the preparation of the Financial Statements
(the "Estimated Foreign Corporation Closing Liabilities"). Within five
(5) Business Days after the Closing, the Sellers shall, working in
cooperation with the Buyers, deliver a report (the "Sellers' Closing
Report") which identifies (i) the dollar value of all Accounts
Receivable (the "Accounts Receivable Amount") and Accounts Payable (the
"Accounts Payable Amount") as of the Closing Date, determined using the
procedures and methodologies set forth in Section 3.2(a), (ii) the
value of the Inventory of the Business as of the Closing Date,
determined using the methodologies and procedures set forth in Section
3.2(b) (the "Inventory Amount") and (iii) all Liabilities of the
Foreign Corporations (other than Accounts Payable and Liabilities for
Taxes) as of the Closing Date, but only to the extent that such
Liabilities are required to be reflected on a balance sheet prepared in
accordance with U.S. GAAP and in a manner consistent with the
preparation of the Financial Statements (the "Foreign Corporation
Closing Liabilities"). The sum of the Accounts Receivable Amount plus
the Inventory Amount, less the Accounts Payable Amount and less the
Foreign Corporation Closing Liabilities, in each case as set forth in
the Sellers' Closing Report, shall be referred to herein as the
"Estimated Working Capital Amount."
(d) Disputes. Concurrent with the delivery of the Sellers'
Closing Report and until such time as all disputes are resolved
pursuant to this Section 3.2(d), the Sellers shall deliver to the
Buyers such back-up information as the Buyers' Representatives shall
reasonably request in order to review the calculation of the Accounts
Receivable Amount, the Inventory Amount, the Accounts Payable Amount
and the Foreign Corporation Closing Liabilities. In the event that the
Buyers believe that the Sellers' Closing Report overstates or
understates the Accounts Receivable Amount, the Inventory Amount, the
Accounts Payable Amount and/or the Foreign Corporation Closing
Liabilities, the Buyers shall, within ten (10) Business Days after the
Buyers' receipt of the Sellers' Closing Report, advise Insilco in
writing of any objections that the Buyers may have with respect to the
Sellers' Closing Report (any such objection shall (x) be set forth in
reasonable detail, (y) include supporting calculations and
documentation and (z) propose an adjustment to the Estimated Working
Capital Amount) (a "WC Objection"); provided, however, that the Buyers
shall not object to the Inventory Amount based upon the methodologies
and procedures utilized in determining the Inventory Amount, provided
that such methodologies and procedures are consistent with the Sellers'
past practices of inventory determination utilized in the preparation
of the Financial Statements. In the event that the Buyers fail to
deliver to
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Insilco a WC Objection within such ten (10) Business Day period, the
Buyers shall be deemed to have accepted and consented to the
calculations and determinations made in the Sellers' Closing Report and
the calculation of the Estimated Working Capital Amount contained in
the Sellers' Closing Report shall be deemed to be the "Final Working
Capital Amount." In the event that the Buyers deliver a WC Objection
within ten (10) Business Days after the Buyers' receipt of the Sellers'
Closing Report, the Buyers and Insilco shall utilize commercially
reasonable efforts to try to resolve the objections set forth in the WC
Objection (the "Disputed Items") within ten (10) Business Days of
Insilco's receipt of a WC Objection (the "Resolution Period"). If the
Buyers and Insilco are unable to resolve the Buyers' objections within
the Resolution Period, Insilco and the Buyers shall refer the Disputed
Items to the New York office of BDO Siedman or, if such firm is
unwilling or unable to serve, the Buyers and Insilco shall engage
another mutually acceptable accounting firm (BDO Siedman or such other
firm, the "Arbiter"), in either case within five (5) Business Days of
the end of the Resolution Period, to determine how the Disputed Items
should be resolved. The Buyers and Insilco shall use reasonable efforts
to cause the Arbiter, within ten (10) Business Days after it is
selected, to (y) resolve all of the Disputed Items, based solely upon
the provisions of this Agreement, such data as the Arbiter shall
request from the Buyers and Insilco and the presentations by the
Buyers, Insilco and their respective representatives, and not by
independent review, and (z) re-calculate the Estimated Working Capital
Amount by giving effect to the Arbiter's resolution of the Disputed
Items. In resolving any Disputed Item, the Arbiter: (x) shall limit its
review to matters specifically set forth in the WC Objection; (y) shall
further limit its review to whether the calculations are mathematically
accurate and have been prepared in accordance with the provisions of
this Agreement; and (z) shall not assign a value to any item greater
than the greatest value for such item claimed by a party hereto or less
than the smallest value for such item claimed by a party hereto. The
calculation by Insilco and the Buyers or by the Arbiter, as the case
may be, of the Accounts Receivable Amount plus the Inventory Amount
minus the Accounts Payable Amount and minus the Foreign Corporation
Closing Liabilities in accordance with this Section 3.2(d) shall be
final, conclusive and binding and shall serve as the "Final Working
Capital Amount." The fees and expenses of the Arbiter shall be shared
equally between the Buyers and Insilco, with Insilco's obligations to
be satisfied from the Escrowed Amount pursuant to the terms of the
Escrow Agreement.
(e) Purchase Price Adjustment. On the third (3rd) Business Day
following the date on which the Final Working Capital Amount is
determined, the Purchase Price shall be adjusted as follows: in the
event that (i) the Final Working Capital Amount is greater than
$24,057,000 (the "Benchmark Working Capital Amount"), the Purchase
Price shall be increased, on a dollar for dollar basis, in an amount
equal to the lesser of (y) one million dollars ($1,000,000) and (z) the
difference between the Final Working Capital Amount and the Benchmark
Working Capital Amount and the Buyers shall deliver such lesser amount
to the Sellers by wire transfer to one or more accounts designated by
Insilco or (ii) the Final Working Capital Amount is less than the
Benchmark Working Capital Amount, the Purchase Price shall be reduced,
on a dollar for dollar basis, in an amount equal to the lesser of (y)
one million dollars ($1,000,000) and (z) the difference between the
Benchmark Working Capital Amount and the Final Working Capital Amount
and the Buyers shall be entitled to receive from the Escrowed Amount,
pursuant to the Escrow Agreement, an amount equal to such lesser
amount; provided, however, (A) if such lesser amount exceeds the funds
available for distribution pursuant to the Escrow Agreement then the
Buyers shall be entitled to receive only such available funds (and the
xxi
Sellers shall not be obligated to the Buyers for any amount in excess
of such available funds) and (B) if such lesser amount is less than
such available funds, then after payment to the Buyers of such lesser
amount pursuant to this Agreement and the Escrow Agreement any
remaining balance of such available funds shall be immediately
transferred to the Sellers.
ARTICLE IV
THE CLOSING
Section 4.1 Time and Place of Closing. Upon the terms and subject to
the satisfaction of the conditions contained in Article VIII of this Agreement,
the closing of the sale of the Shares and the Purchased Assets and the
assumption of the Assumed Liabilities and Assumed Agreements contemplated by
this Agreement (the "Closing") shall take place at the offices of Shearman &
Sterling, 599 Lexington Avenue, New York, New York, at 10:00 A.M. (local time)
no later than the fifth (5th) Business Day following the date on which the
conditions set forth in such Article VIII have been satisfied (other than the
conditions with respect to actions the respective parties hereto will take at
the Closing itself) or, to the extent permitted, waived in writing, or at such
other place or time as the Buyers and Sellers may mutually agree. The date and
time at which the Closing actually occurs is hereinafter referred to as the
"Closing Date."
Section 4.2 Deliveries by the Sellers. At or prior to the Closing, the
Sellers shall deliver the following to the Buyers:
(a) stock certificates or similar instruments evidencing the
Shares duly endorsed in blank, or accompanied by stock powers duly
executed in blank, and with all required stock transfer tax stamps
affixed;
(b) the Bill of Sale, duly executed by the Sellers and all such
other instruments of assignment or conveyance as shall be reasonably
necessary to transfer to the Buyers all of the Sellers' right, title
and interest in, to and under all of the Purchased Assets and the
Shares, in accordance with this Agreement, in each case duly executed
by the Sellers;
(c) all consents, waivers or approvals obtained by the Sellers
with respect to the Purchased Assets, the transfer of the Transferable
Permits and the consummation of the transactions required in connection
with the sale of the Purchased Assets contemplated by this Agreement,
to the extent specifically required hereunder;
(d) the certificate contemplated by Section 8.2(b);
(e) the Assumption Agreement, duly executed by the Sellers;
(f) the Intellectual Property Assignment, duly executed by the
Sellers;
(g) the Non-Competition Agreement, duly executed by the
Sellers;
(h) the Escrow Agreement, duly executed by the Sellers;
xxii
(i) certified copies of the Certificate of Incorporation and
the Bylaws (or similar governing documents) of each of the Sellers,
each as in effect as of the Closing;
(j) certified copies of the resolutions duly adopted by the
board of directors of each of the Sellers authorizing the execution,
delivery and performance of this Agreement and each of the other
transactions contemplated hereby;
(k) deeds and other necessary documents of conveyance (as
customarily utilized in the sale of commercial real property in the
states where each Owned Real Property is located) evidencing the
conveyance of each Owned Real Property to the Buyers;
(l) the Share Transfer and Assignment Agreement, duly executed
on behalf of the shareholder of Insilco Technologies Germany before a
German or Swiss Notary Public; and
(m) all such other agreements, documents, instruments and
writing as are required to be delivered by Sellers at or prior to the
Closing Date pursuant to this Agreement.
Section 4.3 Deliveries by the Buyers. At or prior to the Closing, the
Buyers shall deliver the following:
(a) to the Sellers, an amount of cash equal to the Cash Price
less all amounts required by Section 2.4(b) plus all amounts required
by Section 2.6(d), by wire transfer of immediately available U.S. funds
to an account or accounts designated by Insilco;
(b) to the Sellers, an amount of cash equal to the Cure Amount
Payment, by wire transfer of immediately available U.S. funds to an
account or accounts designated by Insilco;
(c) to the Sellers, an amount of cash equal to the Retained
Employee Payment Amount, by wire transfer of immediately available U.S.
funds to an account or accounts designated by Insilco;
(d) to the Escrow Agent, an amount of cash equal to the
Escrowed Amount;
(e) to Insilco, certified copies of the Certificate of
Incorporation and the Bylaws (or similar governing documents) of each
of the Buyers, each as in effect as of the Closing;
(f) to Insilco, certified copies of the resolutions duly
adopted by the board of directors of each of the Buyers authorizing the
execution, delivery and performance of this Agreement and each of the
other transactions contemplated hereby;
(g) to Insilco, the Assumption Agreement, duly executed by the
Buyers;
(h) to Insilco, the Escrow Agreement, duly executed by the
Buyers;
(i) to Insilco, the Intellectual Property Assignment, duly
executed by the Buyers;
xxiii
(j) to Insilco, the Share Transfer and Assignment Agreement,
duly executed on behalf of one of the Buyers before a German or Swiss
Notary Public;
(k) to Insilco, the certificate contemplated by Section 8.3(b);
(l) to Insilco, all such other instruments of assumption as
shall be reasonably necessary for the Buyers to assume the Assumed
Liabilities in accordance with this Agreement; and
(m) all such other agreements, documents, instruments and
writings as are required to be delivered by the Buyers at or prior to
the Closing Date pursuant to this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLERs
The Buyers specifically acknowledge and agree to the following with
respect to the representations and warranties of the Sellers:
A. The Buyers have conducted their own due diligence
investigations of the Business.
B. Except when the context otherwise requires, the Sellers
make no representations or warranties in this Article V with respect to
the Excluded Assets or the Excluded Liabilities.
As an inducement to the Buyers to enter into this Agreement and to
consummate the transactions contemplated hereby, the Sellers, jointly and
severally, represent and warrant to the Buyers as follows:
Section 5.1 Organiz ation; Qualification of the Sellers. Each Seller
(a) is a corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all requisite
corporate power and authority to own, lease, and operate the Purchased Assets
and to carry on the Business as is now being conducted except where the failure
to be so qualified or licensed and in good standing would not have a Material
Adverse Effect and (b) as related to the operation of the Business, is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification
necessary, except in those jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not have a Material Adverse
Effect. Each Seller has heretofore furnished to the Buyers complete and correct
copies of the certificates of incorporation and by-laws or similar
organizational documents of each Seller as presently in effect. None of the
Business has been conducted by or from any of the Excluded Subsidiaries since
June 2001.
Section 5.2 Authority Relative to this Agreement. Each Seller has all
corporate power and, upon entry and effectiveness of the Approval Order, will
have all corporate authority
xxiv
necessary to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the board of directors or other similar governing body of
each Seller and no other corporate proceedings on the part of any Seller is
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by each Seller, and assuming that this Agreement constitutes a valid
and binding agreement of the Buyers, and subject to the entry and effectiveness
of the Approval Order, constitutes a valid and binding agreement of each Seller,
enforceable against each Seller in accordance with its terms, except that such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
or other similar laws affecting or relating to enforcement of creditors' rights
generally or general principles of equity.
Section 5.3 Organization, Authority and Qualification of the Foreign
Corporations. (a) Each Foreign Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and has all necessary power and authority to own, operate or lease
the properties and assets now owned, operated or leased by it and to carry on
the Business as it has been and is currently conducted, except to the extent
that the failure to be in good standing would not materially adversely affect
the ability of the Foreign Corporations to conduct the Business or otherwise
have a Material Adverse Effect. Each Foreign Corporation is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the properties owned or leased by it or the operation of the Business makes such
licensing or qualification necessary or desirable, except to the extent that the
failure to be so licensed or qualified and in good standing would not materially
adversely affect the ability of the Foreign Corporations to conduct the Business
or otherwise have a Material Adverse Effect. True and correct copies of the
Certificate of Incorporation and By-laws (or the equivalent thereof) of each
Foreign Corporation have been delivered by the Seller Parties to the Buyer.
(b) No Foreign Corporation has guaranteed the Liabilities of
any Affiliate of Insilco other than another Foreign Corporation.
Section 5.4 Capitalization; Ownership of Shares. (a) The authorized
capital stock of Insilco Technologies Germany consists of the following: 60,000
shares of common stock, 1 Euro par value per share (the "Insilco Technologies
Germany Shares"). As of the date hereof, one (1) Insilco Technologies Germany
Share is issued and outstanding, which is validly issued, fully paid and
nonassessable and was not issued in violation of any preemptive rights. There
are no options, warrants, convertible securities or other rights, agreements,
arrangements or commitments relating to the Insilco Technologies Germany Shares
or obligating any Seller Party or Insilco Technologies Germany to issue or sell
any Insilco Technologies Germany Shares, or any other interest in, Insilco
Technologies Germany. There are no outstanding contractual obligations of
Insilco Technologies Germany to repurchase, redeem or otherwise acquire any
Insilco Technologies Germany] Shares. The Insilco Technologies Germany Shares
constitute all the issued and outstanding capital stock of Insilco Technologies
Germany and are owned of record and beneficially by Stewart Connector Systems,
Inc. free and clear of all Encumbrances, except as set forth in Schedule 5.4(a)
of the Disclosure Schedule. Except as set forth on Schedule 5.4(a) of the
Disclosure Schedule, after December 31, 1997 Insilco Technologies Germany has
never declared, issued or otherwise made any capital repayments nor has Insilco
xxv
Technologies Germany had a hidden profit distribution asserted against it. Upon
consummation of the transactions contemplated by this Agreement and registration
of the Insilco Technologies Germany Shares in the name of the Buyers in the
stock records of Insilco Technologies Germany, assuming Buyers shall have
purchased the Insilco Technologies Germany Shares for value in good faith and
without notice of any adverse claim, the Buyers will own all the issued and
outstanding capital stock of Insilco Technologies Germany free and clear of all
Encumbrances.
(b) The authorized capital stock of Top East consists of the
following: 10,000 shares of common stock, HK$1.00 par value per share (the "Top
East Shares"). As of the date hereof, 10,000 Top East Shares are issued and
outstanding, all of which are validly issued, fully paid and nonassessable and
were not issued in violation of any preemptive rights. There are no options,
warrants, convertible securities or other rights, agreements, arrangements or
commitments relating to the Top East Shares or obligating any Seller Party or
Top East to issue or sell any Top East Shares, or any other interest in, Top
East. There are no outstanding contractual obligations of Top East to
repurchase, redeem or otherwise acquire any Top East Shares. The Top East Shares
constitute all the issued and outstanding capital stock of Top East and are
owned of record and beneficially by InNet Technologies, Inc. free and clear of
all Encumbrances, except as set forth in Schedule 5.4(b) of the Disclosure
Schedule. Upon consummation of the transactions contemplated by this Agreement
and registration of the Top East Shares in the name of the Buyers in the stock
records of Top East, assuming Buyers shall have purchased the Top East Shares
for value in good faith and without notice of any adverse claim, the Buyers will
own all the issued and outstanding capital stock of Top East free and clear of
all Encumbrances.
(c) The authorized capital stock of Stewart Connector Mexico
consists of the following: 500 shares of common stock, 100 pesos par value per
share (the "Stewart Connector Mexico Shares"). As of the date hereof, 500
Stewart Connector Mexico Shares are issued and outstanding, all of which are
validly issued, fully paid and nonassessable and were not issued in violation of
any preemptive rights. There are no options, warrants, convertible securities or
other rights, agreements, arrangements or commitments relating to the Stewart
Connector Mexico Shares or obligating any Seller Party or Stewart Connector
Mexico to issue or sell any Stewart Connector Mexico Shares, or any other
interest in, Stewart Connector Mexico. There are no outstanding contractual
obligations of Stewart Connector Mexico to repurchase, redeem or otherwise
acquire any Stewart Connector Mexico Shares. The Stewart Connector Mexico Shares
constitute all the issued and outstanding capital stock of Stewart Connector
Mexico and are owned of record and beneficially by Stewart Connector Systems,
Inc. in the amount of 490 of the Stewart Connector Mexico Shares and by Insilco
in the amount of 10 of the Stewart Connector Mexico Shares free and clear of all
Encumbrances, except as set forth in Schedule 5.4(c) of the Disclosure Schedule.
Upon consummation of the transactions contemplated by this Agreement and
registration of the Stewart Connector Mexico Shares in the name of the Buyers in
the stock records of Stewart Connector Mexico, assuming Buyers shall have
purchased the Stewart Connector Mexico Shares for value in good faith and
without notice of any adverse claim, the Buyers will own all the issued and
outstanding capital stock of Stewart Connector Mexico free and clear of all
Encumbrances.
xxvi
(d) The authorized capital stock of ITI consists of the
following: 1,000,000 shares of common stock, HK$1.00 par value per share (the
"ITI Shares"). As of the date hereof, 1,000,000 ITI Shares are issued and
outstanding, all of which are validly issued, fully paid and nonassessable and
were not issued in violation of any preemptive rights. There are no options,
warrants, convertible securities or other rights, agreements, arrangements or
commitments relating to the ITI Shares or obligating any Seller Party or ITI to
issue or sell any ITI Shares, or any other interest in, ITI. There are no
outstanding contractual obligations of ITI to repurchase, redeem or otherwise
acquire any ITI Shares. The ITI Shares constitute all the issued and outstanding
capital stock of ITI and are owned of record and beneficially by InNet
Technologies, Inc. free and clear of all Encumbrances, except as set forth in
Schedule 5.4(d) of the Disclosure Schedule. Upon consummation of the
transactions contemplated by this Agreement and registration of the ITI Shares
in the name of the Buyers in the stock records of ITI, assuming Buyers shall
have purchased the ITI Shares for value in good faith and without notice of any
adverse claim, the Buyers will own all the issued and outstanding capital stock
of ITI free and clear of all Encumbrances.
(e) The authorized capital stock of Sempco consists of the
following: 50,000 Series B1 shares of common stock, 1 Mexican peso par value per
share (the "Sempco Shares"). As of the date hereof, 50,000 Sempco Shares are
issued any outstanding, all of which are validly issued, fully paid and
nonassessable and were not issued in violation of any preemptive rights. There
are no options, warrants, convertible securities or other rights, agreements,
arrangements or commitments relating to the Sempco Shares or obligating any
Seller Party or Sempco to issue or sell any Sempco Shares, or any other interest
in, Sempco. There are no outstanding contractual obligations of Sempco to
repurchase, redeem or otherwise acquire any Sempco Shares. The Sempco Shares
constitute all the issued and outstanding capital stock of Sempco and are owned
of record and beneficially by Insilco International Holdings, Inc. in the amount
of 500 of the Sempco Shares and by Signal Transformer Co., Inc. in the amount of
49,500 of the Sempco Shares free and clear of all Encumbrances, except as set
forth in Schedule 5.4(e) of the Disclosure Schedule. Upon consummation of the
transactions contemplated by this Agreement and registration of the Sempco
Shares in the name of the Buyers in the stock records of Sempco, assuming Buyers
shall have purchased the Sempco Shares for value in good faith and without
notice of any adverse claim, the Buyers will own all the issued and outstanding
capital stock of Sempco free and clear of all Encumbrances.
(f) The authorized capital stock of Signal Dominicana consists
of the following: 100 shares of common stock, 100 pesos par value per share (the
"Signal Dominicana Shares"). As of the date hereof, 100 Signal Dominican Shares
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable and were not issued in violation of any preemptive rights. There
are no options, warrants, convertible securities or other rights, agreements,
arrangements or commitments relating to the Signal Dominicana Shares or
obligating any Seller Party or Signal Dominicana to issue or sell any Signal
Dominicana Shares, or any other interest in, Signal Dominicana. There are no
outstanding contractual obligations of Signal Dominicana to repurchase, redeem
or otherwise acquire any Signal Dominicana Shares. The Signal Dominicana Shares
constitute all the issued and outstanding capital stock of Signal Dominicana and
are owned of record and beneficially by Insilco free and clear of all
Encumbrances, except as set forth in Schedule 5.4(f) of the Disclosure Schedule.
Upon consummation of the transactions contemplated by this Agreement and
registration of the Signal Dominicana Shares in the name of
x27
the Buyers in the stock records of Signal Dominicana, assuming Buyers shall have
purchased the Signal Dominicana Shares for value in good faith and without
notice of any adverse claim, the Buyers will own all the issued and outstanding
capital stock of Signal Dominicana free and clear of all Encumbrances.
(g) The authorized capital stock of Signal Transformer Mexico
consists of the following: 50,000 Series B1 shares of common stock, 1 Mexican
peso par value per share (the "Signal Transformer Mexico Shares"). As of the
date hereof, 50,000 Signal Transformer Mexico Shares are issued and outstanding,
all of which are validly issued, fully paid and nonassessable and were not
issued in violation of any preemptive rights. There are no options, warrants,
convertible securities or other rights, agreements, arrangements or commitments
relating to the Signal Transformer Mexico Shares or obligating any Seller Party
or Signal Transformer Mexico to issue or sell any Signal Transformer Mexico
Shares, or any other interest in, Signal Transformer Mexico. There are no
outstanding contractual obligations of Signal Transformer Mexico to repurchase,
redeem or otherwise acquire any Signal Transformer Mexico Shares. The Signal
Transformer Mexico Shares constitute all the issued and outstanding capital
stock of Signal Transformer Mexico and are owned of record and beneficially by
ITI in the amount of 500 of the Signal Transformer Mexico Shares and by Signal
Transformer Co., Inc. in the amount of 49,500 of the Signal Transformer Mexico
Shares free and clear of all Encumbrances, except as set forth in Schedule
5.4(g) of the Disclosure Schedule. Upon consummation of the transactions
contemplated by this Agreement and registration of the Signal Transformer Mexico
Shares in the name of the Buyers in the stock records of Signal Transformer
Mexico, assuming Buyers shall have purchased the Signal Transformer Mexico
Shares for value in good faith and without notice of any adverse claim, the
Buyers will own all the issued and outstanding capital stock of Signal
Transformer Mexico free and clear of all Encumbrances.
Section 5.5 Consents and Approvals; No Violation. Except to the extent
excused by or unenforceable as a result of the filing of the Chapter 11 Cases or
the applicability of any provision of the Bankruptcy Code, and except for the
entry and effectiveness of the Approval Order, the execution and delivery of
this Agreement by the Sellers, the sale by the Sellers of the Shares and the
sale by the Sellers of the Purchased Assets pursuant to this Agreement will not
(a) conflict with or result in any breach of any provision of the Certificate or
Articles of Incorporation or Bylaws (or other similar governing documents) of
any Seller Party, (b) require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Authority or third party
which has not otherwise been obtained or made, except (i) where the failure to
obtain such consent, approval, authorization or permit, or to make such filing
or notification, would not have a Material Adverse Effect or prevent or
materially delay
xxviii
the consummation of the transactions contemplated by this Agreement or (ii) for
those requirements which become applicable to the Sellers as a result of the
specific regulatory status of the Buyers (or any of their Affiliates) or as a
result of any other facts that specifically relate to the business or activities
in which the Buyers (or any of their Affiliates) is or proposes to be engaged;
(c) result in a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
to which any Seller Party is a party or by which any Seller Party, the Shares or
any of the Purchased Assets may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained or which would not have a Material Adverse Effect or
prevent or materially delay the consummation of the transactions contemplated by
this Agreement; or (d) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to any Seller Party, or any of their assets, which
violation would have a Material Adverse Effect.
Section 5.6 Financial Statements and Reports. (a) Schedule 5.6(a) of
the Disclosure Schedule includes true and complete copies of: (i) the unaudited
consolidated balance sheets of the Business as of December 31, 1999, 2000 and
2001, and the related unaudited consolidated statements of operations and cash
flows for the years ended December 31, 1999, 2000 and 2001 (the "Unaudited
Annual Financial Statements") and (ii) the unaudited consolidated balance sheet
of the Business as of September 27, 2002 (the "Balance Sheet"), and the related
unaudited consolidated statement of operations and cash flows of the Business
for nine (9) months ended September 28, 2001 and September 27, 2002 and for the
three (3) months ended March 29, 2002, June 28, 2002 and September 27, 2002
(together with the Unaudited Annual Financial Statements, the "Financial
Statements").
(b) The Financial Statements present fairly in all material
respects the financial condition and results of operations of the Business as of
the dates and for the periods included therein. The Financial Statements are a
component of the consolidated financial statements of Insilco Holding Co. and
Insilco. The consolidated financial statements of Insilco Holding Co. and
Insilco for the period ended September 27, 2002 have been certified to the
extent required by the Sarbanes-Oxley Act of 2002.
(c) To the Sellers' Knowledge, there have not been: (i) any
funds or assets of the Business used, directly or indirectly, for illegal
purposes; (ii) an accumulation or use of the Business' funds without being
properly accounted for in the respective books and records of the Business;
(iii) any material payments by or on behalf of the Business not duly and
properly recorded and accounted for in its books and records; (iv) any false or
artificial entries made in the books and records of the Business for any reason;
or (v) any payment made by or on behalf of the Business with the understanding
that any part of such payment is to be used for any purpose other than that
described in the documents supporting such payment.
Section 5.7 Title to Assets. At the Closing, the Buyers shall acquire
(a) all of the Sellers' right, title and interest in, to and under (subject to
such being assumed and assigned in accordance with Section 2.6) all of the
Purchased Assets, in each case free and clear of all Encumbrances except for
Closing Encumbrances and (b) the Shares free and clear of all Encumbrances. At
the Closing, the Foreign Corporations' right, title and interest in their assets
shall be free and clear of all Encumbrances except for Closing Encumbrances. The
Purchased Assets and the assets owned, leased or licensed by the Foreign
Corporations include all of the assets and properties necessary to conduct, in
all material respects, the Business as currently conducted. The Purchased
Assets, the assets owned by the Foreign Corporations, the assets leased or
licensed by the Foreign Corporations and the assets subject to the Assumed
Agreements are in good operating condition, fit for operation in the ordinary
course of the Business, with no material defects that could reasonably be
expected to interfere with their good operating condition, ordinary wear and
tear excepted.
xxix
Section 5.8 Owned Real Property. (a) Schedule 5.8(a) of the Disclosure
Schedule lists, as of the date of this Agreement, the street address of each
parcel of Owned Real Property and the current owner of each parcel of Owned Real
Property.
(b) Except as set forth on Schedule 5.8(b) of the Disclosure
Schedule, no Seller Party is in material violation of any law, rule, regulation,
ordinance or judgment of any Governmental Authority (including, without
limitation, any building, planning or zoning law) relating to any of the Owned
Real Property. The Seller Parties have made available to the Buyers true and
complete copies of each deed for each parcel of Owned Real Property and all the
title insurance policies, title reports, surveys, title documents and other
documents relating to or otherwise affecting the Owned Real Property as it
relates to the Business. The Seller Parties are in peaceful and undisturbed
possession of each parcel of Owned Real Property, and there are no contractual
or legal restrictions that preclude or restrict the ability to use the Owned
Real Property for the purposes for which it is currently being used. Immediately
prior to the Closing, the Sellers will have good and marketable title to each
parcel of Owned Real Property free and clear of all Encumbrances other than
Permitted Encumbrances. There are no Persons in possession of any parcel of
Owned Real Property other than the Seller Parties.
(c) No improvements on the Owned Real Property and none of the
current uses and conditions thereof violate any Encumbrance, applicable deed
restrictions or other applicable covenants, restrictions, agreements, existing
site plan approvals, zoning or subdivision regulations or urban redevelopment
plans as modified by any duly issued variances, and no permits, licenses or
certificates pertaining to the ownership or operation of all improvements on the
Owned Real Property, other than those which are transferable with the Owned Real
Property, are required by any Governmental Authority having jurisdiction over
the Owned Real Property.
(d) Except as set forth on Schedule 5.8(d) of the Disclosure
Schedule, the Seller Parties have not received any notice of threatened
condemnation proceedings, lawsuits or administrative actions relating to any of
the Owned Real Property or any other matters which do or may materially
adversely affect the current use, occupancy or value thereof as it relates to
the Business, and there are no pending or, to the Sellers' Knowledge, threatened
condemnation proceedings, lawsuits or administrative actions relating to any of
the Owned Real Property or any other matters which do or may materially
adversely affect the current use, occupancy or value thereof as it relates to
the Business.
(e) Except as set forth on Schedule 5.8(e) of the Disclosure
Schedule, the Seller Parties have not received any notice that any of the Owned
Real Property or any of the structures thereon, or the use, occupancy or
operation thereof by any Seller Party, violate any material governmental
requirements, deed or other title covenants or restrictions or Permits.
(f) To the Knowledge of the Sellers, the Seller Parties have
obtained all material approvals of Governmental Authorities (including
certificates of use and occupancy, licenses and other Permits) required to be
held by them in connection with the use and occupancy of the Owned Real Property
and the structures located thereon. To the Sellers' Knowledge, the structures on
the Owned Real Properties are within the applicable boundary lines and there are
no encroachments on the Owned Real Properties.
xxx
Section 5.9 Leased Real Property. (a) Schedule 5.9(a) of the Disclosure
Schedule, lists, as of the date of this Agreement, the street address of each
parcel of Leased Real Property and the identity of the lessor, lessee and
current occupant (if different from lessee) of each such parcel of Leased Real
Property.
(b) Schedule 5.9(b) of the Disclosure Schedule sets forth a
true and complete list of all leases and subleases relating to the Leased Real
Property and any and all ancillary documents pertaining thereto (including all
amendments, modifications, supplements, exhibits, schedules, addenda and
restatements thereto and thereof and all consents, including consents for
alterations, assignments and sublets, documents recording variations, memoranda
of lease, options, rights of expansion, extension, first refusal and first offer
and evidence of commencement dates and expiration dates). With respect to each
of such leases and subleases, except as otherwise set forth on Schedule 5.9(b)
of the Disclosure Schedule, no Seller Party has exercised or given any notice of
exercise, nor has any lessor or landlord exercised or received any notice of
exercise of, any option, right of first offer or right of first refusal
contained in any such lease or sublease, including, without limitation, any such
option or right pertaining to purchase, expansion, renewal, extension or
relocation (collectively, "Options").
(c) The rental set forth in each lease or sublease of the
Leased Real Property is the actual rental being paid, and there are no separate
agreements or understandings with respect to the same. Each Seller Party has the
full right to exercise its respective Options contained in its respective leases
and subleases pertaining to the Leased Real Property on the terms and conditions
contained therein and upon due exercise would be entitled to enjoy the full
benefit of such Options with respect thereto.
(d) No Seller Party has received any notice of threatened
condemnation proceedings, lawsuits or administrative actions relating to any of
the Leased Real Property or any other matters which do or may materially
adversely affect the current use, occupancy or value thereof as it relates to
the Business, and there are no pending or, to the Sellers' Knowledge, threatened
condemnation proceedings, lawsuits or administrative actions relating to any of
the Leased Real Property or any other matters which do or may materially
adversely affect the current use, occupancy or value thereof as it relates to
the Business.
(e) No Seller Party has received any notice that any of the
Leased Real Property or any of the structures thereon, or the use, occupancy or
operation thereof by the Seller Party or any of its Affiliates, violate any
material governmental requirements, deed or other title covenants or
restrictions or Permits.
(f) To the Seller's Knowledge, the Seller Parties have obtained
all material approvals of Governmental Authorities (including certificates of
use and occupancy, licenses and other Permits) required to be held by them in
connection with the use and occupancy of the Leased Real Property and the
structures located thereon.
xxxi
Section 5.10 Environmental Matters. Except as disclosed on Schedule
5.10 of the Disclosure Schedule:
(a) to the Sellers' Knowledge, the Seller Parties hold, and
are, and have been for the three years prior to the date hereof, in
substantial compliance with all material permits, licenses and
governmental authorizations required for the Seller Parties to conduct
the Business under applicable Environmental Laws ("Environmental
Permits") (all of the Environmental Permits required for the conduct of
the Business are identified on Schedule 5.10 of the Disclosure
Schedule), and the Seller Parties are otherwise in material compliance
with the terms and conditions of the Environmental Permits and
applicable Environmental Laws with respect to the Business and the
Purchased Assets;
(b) no Seller Party has received any written notice that it is
a potentially responsible party under CERCLA or any similar state law
with respect to the Business or the Purchased Assets;
(c) no Seller Party has entered into or agreed to any consent
decree or order, or other binding agreement with a Governmental
Authority or is subject to any outstanding judgment, decree, or
judicial or administrative order relating to compliance with or
liability under any Environmental Law or to the investigation or
cleanup of Hazardous Substances under any Environmental Law relating to
the Business or the Purchased Assets;
(d) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, or, to Sellers' Knowledge,
investigations or other proceedings pending or threatened against the
Business or any Seller Party or their Affiliates with respect to the
Business or, to the Sellers' Knowledge, the Purchased Assets relating
to any violations, or alleged violations, of any Environmental Law that
could reasonably be expected to result in a material liability;
(e) with respect to the Business, no Seller Party nor any of
their respective Affiliates have received any notices, demand letters
or requests for information, arising out of, in connection with, or
resulting from, a violation, or alleged violation, of any Environmental
Law that could reasonably be expected to result in a material
liability;
(f) no Seller Party nor any of their respective Affiliates have
been notified by any Governmental Authority or any other Person that
the Business, any Seller Party or any of their respective Affiliates
have, or may have, any material liability relating to the Business
pursuant to any Environmental Law;
(g) to the Knowledge of the Sellers, no Person has generated,
manufactured, stored, transported, treated, recycled, disposed of or
otherwise handled, in any way, any material quantities or
concentrations of Hazardous Substances in violation of any applicable
Environmental Law on any of the Owned Real Property or Leased Real
Property;
(h) to the Sellers' Knowledge, copies of all environmental
investigations, studies, audits, tests, reviews, or other analyses
conducted by or which are in the possession of the
xxxii
Seller Parties or any of its respective Affiliates relating to the
Business, Owned Real Property or Leased Real Property (including, with
respect to each of the Owned Real Property and Leased Real Property,
the soil, groundwater or surface water on, under or adjacent to the
Owned Real Property and Leased Real Property (the "Affected Property"))
have been made available to the Buyers prior to the date hereof;
(i) to the Knowledge of the Sellers, there has not occurred and
there is not occurring a release or unlawful discharge of Hazardous
Substances into the environment resulting from the operation of the
Business on any of the Owned Real Property or Leased Real Property that
could reasonably be expected to result in a material liability; and
(j) to the Knowledge of the Sellers, (i) there are no and there
have been no underground storage tanks or any open dumps, landfills,
surface impoundments, lagoons, in-ground vaults, PCB-containing
substances or waste storage, treatment or disposal areas on, in or
under the Owned Real Property or Leased Real Property and (ii) no
friable asbestos insulation or other asbestos-containing material has
been installed at the Owned Real Property or Leased Real Property by
any Seller Party or anyone acting on their behalf or, to Sellers'
Knowledge, by any other Person, and (iii) no facts, events or
conditions exist that would reasonably be expected to prevent, hinder
or limit continued compliance, in all material respects, by the
Business as currently conducted with any Environmental Law or
Environmental Permit after the Closing Date.
The representations and warranties made in this Section 5.10 are the
Seller Parties' exclusive representations and warranties relating to any
environmental matters, including any arising under any Environmental Laws.
Section 5.11 ERISA; Benefit Plans. (a) Schedule 5.11(a) of the
Disclosure Schedule lists each Employee Plan.
(b) Except as set forth in Schedule 5.11(b) of the Disclosure
Schedule, any Employee Plan that is intended to be qualified under Section
401(a) of the Code and exempt from Tax under Section 501(a) of the Code has been
determined by the Internal Revenue Service to be so qualified or an application
for such determination is pending. Any such determination that has been obtained
remains in effect and has not been revoked, and with respect to any application
that is pending, no Seller Party has any reason to believe that such application
for determination will be denied. Nothing has occurred since the date of any
such determination that is reasonably likely to affect adversely such
qualification or exemption, or result in the imposition of excise Taxes or
income Taxes on unrelated business income under the Code or ERISA with respect
to any such Employee Plan.
(c) Each Employee Plan conforms (and at all times has
conformed) in all material respects to, and is being administered and operated
(and at all time has been administered and operated) in material compliance with
its terms and, the requirements of ERISA, the Code (where applicable), all other
applicable laws and any applicable collective bargaining agreement. All returns,
reports and disclosure statements required to be made under ERISA and the Code
with respect to any such Employee Plan has been timely filed or delivered.
Except as disclosed
xxxiii
in Schedule 5.11(c) of the Disclosure Schedule, none of the Employee Plans is a
multiemployer plan (as such term is defined in Section 3(37) of ERISA).
(d) No Seller Party nor any ERISA Affiliate maintains an
Employee Plan which would be reasonably likely to result in the payment to any
employee or former employee of the Business by the Buyers of any money or other
property or rights or accelerate or provide any other right or benefit to any
employee or former employee of the Business which would become a Liability of
the Buyers as a result of the transactions contemplated by this Agreement,
whether or not such payment, right or benefit would constitute a parachute
payment within the meaning of Section 280G of the Code.
(e) The Sellers have delivered to the Buyers true and complete
copies of: (i) each Employee Plan and all amendments not reflected in such
Employee Plan; (ii) all related trust agreements or annuity agreements (and any
other funding document) for each Employee Plan; (iii) for the three (3) most
recent plan years, all annual reports (Form 5500 series) and attached schedules
for each Employee Plan; (iv) for the three (3) most recent plan years, all
financial statements and actuarial reports with respect to each Employee Plan
for which financial statements or actuarial reports are required or have been
prepared; (v) the current summary plan description and subsequent summaries of
material modifications for each Employee Plan; and (vi) the most recent
determination letter for each Employee Plan intended to qualify under Section
401(a) of the Code.
(f) Neither any Employee Plan, any Seller Party or any ERISA
Affiliate nor any trusts created under the Employee Plans or any trustee,
administrator or other fiduciary thereof has engaged in a "prohibited
transaction" (as such term is defined in Section 4975 of the Code or Section 406
of ERISA) which could result in a Tax or penalty. Except as set forth in
Schedule 5.11(f) of the Disclosure Schedule, there have not been any "reportable
events" (as defined in Section 4043 of ERISA) with respect to any Employee Plan.
(g) Except as set forth in Schedule 5.11(g) of the Disclosure
Schedule, no Seller Party or ERISA Affiliate sponsors, or during the last six
(6) years has sponsored, an Employee Plan subject to Title IV of ERISA or
Section 412 of the Code. No event, transaction, or condition has occurred or
exists which could result in the incurrence by any of the Sellers or any ERISA
Affiliate of any Liability or potential Liability pursuant to Title I or IV of
ERISA, the penalty or excise Tax provisions of the Code relating to employee
benefit plans, or Section 412 of the Code, or in the imposition of any
Encumbrance on any of the rights, properties or assets of any Seller Party or
any ERISA Affiliate.
(h) Except as set forth in Schedule 5.11(h) of the Disclosure
Schedule, no Seller Party or ERISA Affiliate has a current or contingent
obligation to contribute to any multiemployer plan (as defined in Section 3(37)
of ERISA). No Seller Party or ERISA Affiliate has incurred (and no event,
transaction or condition has occurred or exists which could result in any Seller
Party or ERISA Affiliate incurring) any withdrawal liability under Section 4201
or 4202 of ERISA in respect of any multiemployer plan. At no time has any Seller
Party or ERISA Affiliate incurred any Liability which could subject the Buyers
to material liability under Sections 4062, 4063 or 4064 of ERISA.
xxxiv
(i) No Seller Party or ERISA Affiliate, nor any other
organization of which any of them is a successor corporation as defined in
Section 4069(b) of ERISA, have engaged in any transaction described in Section
4069(a) of ERISA with respect to any Employee Plan.
(j) With respect to any Employee Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare
Plan") and except as specified in Schedule 5.11(j) of the Disclosure Schedule,
(i) each Welfare Plan for which contributions are claimed by any Seller Party as
deductions under any provisions of the Code is in material compliance with all
applicable requirements pertaining to such deductions, (ii) with respect to any
welfare benefit fund (within the meaning of Section 419 of the Code) related to
a Welfare Plan, there are no disqualified benefits (within the meaning of
Section 4976(b) of the Code), (iii) any Employee Plan that is a group heath plan
(within the meaning of Section 4980B(g)(2) of the Code) complies, and in each
and every case has complied, with all the applicable material requirements of
Section 4980B of the Code, ERISA, Title XXII of the Public Health Service Act
and the Social Security Act, and (iv) all Welfare Plans may be amended or
terminated at any time on or after the Closing Date without any cost, other than
administrative expenses, to the Seller Parties.
(k) Except as set forth on Schedule 5.11(k) of the Disclosure
Schedule, none of the Employee Plans provides, and no Seller Party or ERISA
Affiliate has any obligation to provide, health, medical, life or other
non-pension benefits to retired or other former employees, except as
specifically required by Section 4980B of the Code or Part 6 of Title I of
ERISA, or under the continuation of coverage provisions of the laws of any state
or locality.
(l) To any Seller Party's Knowledge, there are no pending or
threatened claims, suits or other proceedings with respect to any Employee Plan
or Foreign Plan by or on behalf of the individual participants or beneficiaries
of such Employee Plan or Foreign Plan, alleging any breach of fiduciary duty on
the part of any Seller Party or any of their respective officers, directors or
employees under ERISA or other applicable laws, or claiming benefits (other than
those made in the ordinary operation of such Employee Plan or Foreign Plan) or
is there any basis for such claim. To the Sellers' Knowledge, no Employee Plan
or Foreign Plan is the subject to any pending or threatened investigation or
audit by the Internal Revenue Service, the Department of Labor, the PBGC or any
other Governmental Authority.
(m) There is no contract, agreement or benefit arrangement
covering any current or former employee of any Seller Party which, with respect
to the Business, individually or in the aggregate, could reasonably be expected
to give rise to the payment of any amount which would constitute an "excess
parachute payment" (as defined in Section 280G of the Code). Except as set forth
in Schedule 5.11(m) of the Disclosure Schedule, neither the execution of this
Agreement nor the consummation of the transactions contemplated hereby will
likely result in any obligation or Liability (with respect to accrued benefits
or otherwise) of Buyers to the PBGC, to any Employee Plan, or to any present or
former employee, director, officer, stockholder, contractor or consultant of any
Seller Party.
(n) None of the assets of any Seller Party or ERISA Affiliate
constitutes "plan assets" of one or more employee benefit plans within the
meaning of C.F.R. Section 2510.3-101.
xxxv
(o) Except as set forth in Schedule 5.11(o) of the Disclosure
Schedule, there are no employee benefit plans, programs, contracts or
arrangements that would be Employee Plans, and listed on Schedule 5.11(a) of the
Disclosure Schedule, but for the fact that such plans, programs, contracts or
arrangements are subject to the Laws of a jurisdiction other than the United
States and maintained for the benefit of any current or former employee, officer
or director of the Business outside the United States (the "Foreign Plans").
(p) None of the Employee Plans set forth in Schedule 5.11(a) of
the Disclosure Schedule cover any non-United States employee or former employee
(who is not a resident of the United States) of any Seller Party.
(q) Any contributions required to be made to any Foreign Plan
have been made or, if applicable, accrued in accordance with normal accounting
practices and a prorated contribution for the period prior to and including the
Closing Date has been made or accrued.
(r) The fair market value of the assets of any funded Foreign
Plan, the Liability of each insurer for any Foreign Plan funded through
insurance or the book reserve established for any Foreign Plan, together with
any accrued contributions, is sufficient to procure or provide the benefits
determined on an ongoing basis (actual or contingent) accrued to the Closing
Date payable to all current and former participants of any such Foreign Plan
according to the actuarial assumptions and valuations most recently used to
determine employer contributions to such Foreign Plan and the transactions
contemplated hereby shall not cause such assets or insurance obligations to be
less than such benefit obligations.
(s) Each Foreign Plan required to be registered has been
registered and has been maintained in good standing with applicable regulatory
or Governmental Authorities, and each such Foreign Plan is now and has always
been operated in full compliance with all applicable non-United States Law.
(t) All contributions to, and payments from, the Employee Plans
which may have been required to be made in accordance with the Employee Plans
and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been
timely made. All such contributions to the Employee Plans, and all payments
under the Employee Plans, except those to be made from a trust qualified under
Section 401(a) of the Code, for any period ending before the Closing Date that
are not yet, but will be, required to be made are properly accrued and reflected
on the Balance Sheet. No asset of any Seller Party or any ERISA Affiliate is
subject to any Encumbrance under Sections 401(a)(29) or 412(n) of the Code,
Sections 302(f) or 4068 of ERISA or arising out of any action filed under
Section 4301(b) of ERISA.
(u) Except as set forth in Schedule 5.11(u) of the Disclosure
Schedule, no Seller Party nor any ERISA Affiliate has any commitment, whether
formal or informal and whether legally binding or not, to create any additional
Employee Plan or Foreign Plan or modify any existing Employee Plan or Foreign
Plan applicable to any Person employed in the conduct of the Business.
(v) Except as set forth in Schedule 5.11(v) of the Disclosure
Schedule, there has not been in respect of the Business any plant closing or
mass layoff of employees (as those terms
xxxvi
are defined in the WARN Act or any similar state or local Law or regulation)
within the one hundred twenty (120) day period prior to the date hereof, and
within the ninety (90) day period prior to the Closing Date, there has been no
layoff or termination of more than ten (10) employees at any location related
primarily to the Business.
Section 5.12 Certain Contracts and Arrangements. Except for contracts,
agreements, personal property leases, service agreements, customer agreements,
commitments, understandings or instruments which (a) are listed on Schedule
5.9(b), Schedule 5.17(b) or Schedule 5.12 of the Disclosure Schedule (in each
case, "Material Agreements") or (b) have been entered into in the ordinary
course of business and do not involve obligations payable by the Seller Parties
in excess of $50,000 individually, neither the Sellers nor the Foreign
Corporations are, as of the date hereof, a party to any written contract,
agreement, personal property lease, commitment, understanding or instrument
relating to the Business or the Purchased Assets. As of the date of this
Agreement, to the Knowledge of the Sellers, none of the other parties to any
Assumed Agreement or Material Agreements of the Foreign Corporations intends to
terminate or materially alter the provisions of such Assumed Agreement or
Material Agreement, either as a result of the transactions contemplated hereby
or otherwise. As of the date of this Agreement, no Seller Party has been given
or received written notice of any default or claimed, purported or alleged
default, or facts that, with notice or lapse of time, or both, would constitute
a default (or give rise to a termination right) on the part of any party in the
performance of any obligation to be performed under any of the Assumed
Agreements or Material Agreements of the Foreign Corporations (other than
monetary defaults by a Seller Party identified in the Bankruptcy Case). True and
complete copies of all written Assumed Agreements and Material Agreements of the
Foreign Corporations, including any amendments thereto, have been delivered to
Buyers and such documents constitute the legal, valid and binding obligation of
the respective Seller Party.
Section 5.13 Legal Proceedings and Judgments. Except as set forth on
Schedule 5.13 of the Disclosure Schedule and except with respect to actions
commenced in the Chapter 11 Cases, (a) there are no claims, actions, proceedings
or investigations pending or, to the Knowledge of the Seller Parties, threatened
against or involving the Business, the Purchased Assets, the Shares, the Assumed
Liabilities or the Seller Parties before any court or other Governmental
Authority acting in an adjudicative capacity, which would, if adversely
determined, have a Material Adverse Effect; and (b) there are no claims,
actions, proceedings or investigations pending against or, to the Knowledge of
the Sellers, relating to the Seller Parties before any court or other
Governmental Authority acting in an adjudicative capacity, which have been
commenced after the filing of the Chapter 11 Cases and which would, if adversely
determined, have a Material Adverse Effect. Except as set forth on Schedule 5.13
of the Disclosure Schedule, the Seller Parties are not subject to any
outstanding judgment, rule, order, writ, injunction or decree of any court or
other Governmental Authority which would have a Material Adverse Effect.
Section 5.14 Permits. (a) The Sellers and the Foreign Corporations have
all permits, certificates, licenses, franchises and other governmental
authorizations, consents and approvals, other than with respect to Environmental
Laws (which are addressed in Schedule 5.10) (collectively, "Permits"), necessary
for the operation of the Business as presently conducted, except where the
failure to have such Permits would not have a Material Adverse Effect.
xxxvii
Schedule 5.14 of the Disclosure Schedule sets forth a list of all material
Permits and Environmental Permits held by the Sellers and the Foreign
Corporations as of the date hereof and necessary for the operation of the
Business as presently conducted. Except as would not have a Material Adverse
Effect: (i) the Sellers and the Foreign Corporations have fulfilled and
performed their obligations under the Permits, and no event has occurred or
condition or state of facts exists which constitutes or, after notice or lapse
of time or both, would constitute a breach or default under any Permit or which
permits or, after notice or lapse of time or both, would permit revocation or
termination of any Permit, or which might adversely affect the rights of the
Sellers and/or the Foreign Corporations under any such Permit; (ii) no written
notice of cancellation, of default or of any dispute concerning any Permit has
been received by any Seller Party; and (iii) each of the Permits is valid,
subsisting and in full force and effect.
(b) With respect to the Business: (i) no notice of cancellation
of any Permit has been received by, or is known to, the Sellers and (ii) each of
the Permits is valid and in full force and effect, except where such failure of
such Permit to be valid and in full force and effect would not have a Material
Adverse Effect.
Section 5.15 Compliance with Laws. Except to the extent excused by or
unenforceable as a result of the filing of the Chapter 11 Cases or the
applicability of any provision or applicable law of the Bankruptcy Code, to the
Knowledge of the Sellers, the Seller Parties are in compliance, in all material
respects, with all Permits and Laws of any Governmental Authority applicable to
the Business, except for violations which do not have a Material Adverse Effect.
Without limiting the foregoing, to the Knowledge of the Sellers, the Seller
Parties are not in material violation of the Foreign Corrupt Practices Act of
1977.
Section 5.16 Taxes. Each of the Seller Parties has provided to the
Buyers all material income Tax Returns filed by each Foreign Corporation or
filed by a Seller Party with respect to each Foreign Corporation (including IRS
Forms 5471) for any Tax Period for which the applicable statute of limitation
remains open as of the date hereof. Except as set forth on Schedule 5.16 of the
Disclosure Schedule, (a) each of the Seller Parties has filed all material Tax
Returns (including, but not limited to, those filed on a consolidated, combined
or unitary basis) relating to or affecting the Business or any Purchased Asset
that they were required to file (taking into account any extension of time to
file granted to or obtained on behalf thereof), which Tax Returns were correct
and complete in all material respects, (b) each of the Seller Parties has timely
paid all material Taxes shown on such Tax Returns for any taxable period for
which the applicable statute of limitations remains open as of the date hereof,
(c) each of the Seller Parties has, or will have, adequate reserves on its
financial statements for any unpaid material Taxes which (i) relate to the
Business or the Purchased Assets with respect to the Pre-Closing Tax Period and
(ii) are not required to be paid on or prior to the Closing Date, (d) no
deficiency for any material amount of Tax has been asserted or assessed in
writing by any Governmental Authority against the Seller Parties for which there
are not adequate reserves, (e) no Seller Party has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to any Tax assessment or deficiency with respect to the Business or the
Purchased Assets, (f) no Seller Party is the subject of any audit or other
pending action or, to its Knowledge, has been threatened to be made a party to
any action, the subject of any audit or other proceeding relating to the
assessment or collection of Taxes with respect to the Business or the Purchased
Assets, (g) there are no Tax Liens other than Permitted Encumbrances on any
Purchased Asset or
xxxviii
on any of the Shares, (h) no claim has been made within the five (5) years prior
to the date hereof in writing by a Governmental Authority in any jurisdiction
where any Seller Party does not file Tax Returns that the Seller Party is or may
be subject to taxation by that jurisdiction, (i) no Foreign Corporation is a
party to any Tax allocation or Tax sharing agreement, (j) no Foreign Corporation
has ever had in effect any election to be treated as a domestic corporation
pursuant to Section 897(i) of the Code, (k) no Foreign Corporation has any
liability for any Taxes of any Person under Treasury Regulations section
1.1502-6 or any comparable provision of state, local or foreign Law, as a
transferee or successor, by contract, or otherwise, and (l) to the Sellers'
Knowledge, no Foreign Corporation has had income effectively connected with the
conduct of a United States trade or business within the meaning of Section
882(a)(1) of the Code in any taxable year for which unpaid material Taxes may be
assessed by the Internal Revenue Service.
Section 5.17 Intellectual Property. (a) Schedule 5.17(a) of the
Disclosure Schedule identifies all of the Seller Parties' (to the extent
material to the operation of the Business) registered or applied for Copyrights,
Patent Rights and Trademarks.
(b) Schedule 5.17(b) of the Disclosure Schedule sets forth a
true, complete and correct list of all material written agreements relating to
the Intellectual Property to which the Sellers and/or the Foreign Corporations
are a party or otherwise bound (collectively, the "License Agreements"). To the
Sellers' Knowledge, the License Agreements are valid and binding obligations of
the Sellers and/or the Foreign Corporati.ons enforceable against them in
accordance with their terms. To the Sellers' Knowledge, the Sellers and/or the
Foreign Corporations are not currently in default under any License Agreement
nor with notice or lapse of time or both would they be in default, and, to the
Sellers' Knowledge, there exists no event or condition which constitutes a
material violation or material breach of, or constitutes (with or without due
notice or lapse of time or both) a material default by any party under, any such
License Agreement. The Sellers and/or the Foreign Corporations have not
sublicensed their rights to any Intellectual Property rights except pursuant to
the License Agreements. No royalties, honoraria or other fees are payable by the
Sellers and/or the Foreign Corporations to any third parties (other than
Governmental Authorities) for the use of or right to any Intellectual Property
except pursuant to the License Agreements. The Sellers and/or the Foreign
Corporations have delivered to the Buyers true, complete and correct copies of
each License Agreement.
(c) Except as set forth on Schedule 5.17(c) of the Disclosure
Schedule, with respect to the Intellectual Property:
(i) One of the Sellers or the Foreign Corporations is the sole
current owner of record for each application and registration listed on
Schedule 5.17(a) of the Disclosure Schedule.
(ii) The Seller Parties have not received a notice of any
pending and, to the Sellers' Knowledge there is no, threatened claim,
suit, arbitration or other adversarial proceeding before any court,
agency, arbitral tribunal, or registration authority in any
jurisdiction involving any material Intellectual Property or alleging
that the activities or the conduct of the Seller Parties infringes
upon, violates or constitutes the unauthorized use of the proprietary
rights of any third party or challenging the Sellers and/or the
xxxix
Foreign Corporations' ownership, use, validity, enforceability or
registrability of any material Intellectual Property. To the Sellers'
Knowledge, there are no material settlements, forbearances to sue,
consents, judgments, or orders or similar obligations other than the
License Agreements which (A) restrict the Sellers and/or the Foreign
Corporations' rights to use the Intellectual Property, (B) restrict the
Business in order to accommodate a third party's intellectual property
rights or (C) permit third parties to use Intellectual Property.
(iii) To the Sellers' Knowledge, the conduct of the Business as
currently conducted does not infringe upon (either directly or
indirectly such as through contributory infringement or inducement to
infringe), in any material respect, any intellectual property rights
owned or controlled by any third party. To the Sellers' Knowledge, no
third party is misappropriating, infringing, diluting or violating any
intellectual property rights of the Sellers and/or the Foreign
Corporations in and to any material Intellectual Property and no such
claims, suits, arbitrations or other adversarial proceedings are
currently being brought against any third party by the Seller Parties.
(iv) To the Sellers' Knowledge, no trade secret material to the
Business has been disclosed or authorized to be disclosed to any third
party other than pursuant to a written non-disclosure agreement. To the
Sellers' Knowledge, no party to any non-disclosure agreement relating
to the Sellers and/or the Foreign Corporations' trade secrets is in
material breach or default (with or without due notice or lapse of time
or both) thereof.
Except as otherwise contemplated by this Agreement, the consummation of
the transactions contemplated hereby will not (i) result in any third party
having a right of first refusal to purchase or license any Intellectual Property
or (ii) require the consent of any Governmental Authority or third party in
respect of any Intellectual Property.
Section 5.18 Labor and Employment Matters. (a) Except as disclosed on
Schedule 5.18(a) of the Disclosure Schedule, no Seller Party is a party to any
collective bargaining agreement or other labor union contract applicable to
employees of the Business, nor are there any organizational campaigns, petitions
or other unionization activities seeking recognition of a collective bargaining
unit which could materially affect the Business. As of the date hereof, there
are no controversies, strikes, slowdowns or work stoppages pending or, to the
Knowledge of the Sellers, threatened, and none of the Seller Parties has
experienced any such controversy, strike, slowdown or work stoppage within the
past three (3) years, which may materially interfere with the Business. There
are no unfair labor practice complaints pending against any of the Sellers or
the Foreign Corporations before the National Labor Relations Board or any other
Governmental Authority. To the Knowledge of the Sellers, no Seller Party has
received, during the last three (3) years, any threats, relating to the
Business, concerning the bringing of an action before the National Labor
Relations Board or any other Governmental Authority concerning any alleged
unfair labor practice. To the Knowledge of the Sellers, none of the Seller
Parties or their respective representatives or employees has committed any
unfair labor practice in connection with the operation of the Business which
could have a Material Adverse Effect.
xl
(b) Schedule 5.18(b) of the Disclosure Schedule contains a
true, correct and complete list of (i) the employees currently employed by the
Seller Parties in the conduct of the Business, and (ii) all personnel policies,
manuals, employee handbooks, summary plan descriptions and similar materials
pertaining to the Business. The Seller Parties have delivered to the Buyers all
documents referred to in clauses (i) and (ii).
(c) The Seller Parties have been and are in compliance in all
material respects with all applicable Laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including any
such laws respecting employment discrimination, workers' compensation, family
and medical leave, the Immigration Reform and Control Act, the Americans with
Disabilities Act, employment standards and labor relations. To the Knowledge of
the Sellers, none of the Seller Parties or their respective representatives or
employees has committed any violation of such Laws in connection with the
operation of the Business that could have a Material Adverse Effect.
(d) The Sellers are in compliance with the requirements of the
WARN Act and have no Liabilities pursuant to the WARN Act.
Section 5.19 Absence of Certain Developments. Since September 27, 2002
through the date of this Agreement, the Business has been conducted in the
ordinary and usual course of business consistent with past practices and no
Seller Party has: (a) sold, leased, transferred or otherwise disposed of any of
the material assets related to the Business (other than dispositions in the
ordinary course of business consistent with past practices); (b) to the
Knowledge of the Sellers, terminated or amended in any material respect any
Material Agreement to which such Seller Party is a party or to which it is bound
or to which its properties are subject; (c) suffered any material loss, damage
or destruction of any tangible assets with a value in excess of $100,000
individually or $500,000 in the aggregate, unless any such loss, damage or
destruction is covered by insurance, the proceeds of which are payable to the
Buyers in accordance with this Agreement or otherwise made payable to the
Buyers; (d) made any change in the accounting methods or practices it follows,
whether for general financial or Tax purposes, other than as required by U.S.
GAAP; (e) to the Knowledge of the Sellers, incurred any material Liabilities
other than in the ordinary course of business; (f) suffered any material labor
dispute, strike or other work stoppage; or (g) agreed or offered to do any of
the above.
Section 5.20 Brokers. Except for Gleacher Partners LLC, no person is
entitled to any brokerage, financial advisory, finder's or similar fee or
commission payable by the Seller Parties or any of their Affiliates in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Seller Parties. Such fees shall be paid
in full by the Sellers at Closing.
Section 5.21 Accounts Receivable. All Accounts Receivable of the Seller
Parties were incurred in the normal course of business and represent arm's
length sales actually made in the ordinary course of business.
Section 5.22 Inventory. The Inventory is in merchantable condition and
is of a quality useable and saleable in the ordinary course of business. All raw
materials used in the Business have been replenished in the ordinary course of
business. The raw materials now on hand in the
xli
Business were acquired in the ordinary course of business at a cost not
exceeding market prices generally prevailing at the time of purchase.
Section 5.23 Insurance. Schedule 5.23 of the Disclosure Schedule sets
forth a true and correct list of all insurance policies or binders maintained by
the Seller Parties on the date hereof or at any time within the previous ten
(10) years relating to the Business or the Purchased Assets showing, as to each
policy or binder, the carrier, policy number, coverage limits, expiration dates,
deductibles or retention levels and a general description of the type of
coverage provided. Such policies and binders are in full force and effect and
the Seller Parties are otherwise in compliance in all material respects with the
terms and provisions of such policies. Other than as disclosed on Schedule 5.23
of the Disclosure Schedule, the Seller Parties have not received any notice of
cancellation or non-renewal of any such policy or arrangement nor, to the
Sellers' Knowledge, is the termination of any such policies or arrangements
threatened. There is no claim pending under any of such policies or arrangements
as to which coverage has been questioned, denied or disputed by the underwriters
of such policies or arrangements excluding medical claims not in a material
amount as measured against the applicable policy limits. None of such policies
or arrangements provides for any material retrospective premium adjustment,
experienced-based liability or loss sharing arrangement. Schedule 5.23 of the
Disclosure Schedule includes a list of all pending insurance claims of the
Seller Parties pertaining to the Business involving amounts in excess of
$25,000. Schedule 5.23 of the Disclosure Schedule also includes a list of all
insurance claims of any Seller Party relating to environmental matters
pertaining to the Business in excess of $25,000 that have been made by any
Seller Party during the ten (10) year period prior to the date hereof.
Section 5.24 Customers and Suppliers. The Seller Parties have
previously provided the Buyers with a list of the Business' material customer
accounts, including the complete name, address and telephone number of each (the
"Accounts"). The Seller Parties (a) have not made any representations,
warranties, promises, undertakings or agreements to change or modify the
financial, business or operating terms with respect to any of the Accounts,
except in the ordinary course of business; and (b) have not received notice of
any violation of the terms of any arrangement with any Account.
Section 5.25 Operating Names. Schedule 5.25 of the Disclosure Schedule
contains a complete and accurate list of all of the names under which the
Business has operated during the last three (3) years (the "Operating Names").
Section 5.26 Overlapping Assets. Schedule 5.26 of the Disclosure
Schedule sets forth a list (a) of the Purchased Assets ("Buyers' Overlapping
Assets") that are used in the operation of the Sellers' businesses other than
the Business (the "Sellers' Retained Business") and the nature of the usage by
the Seller's Retained Business of Buyers' Overlapping Assets and (b) of the
assets not included in the Purchased Assets ("Sellers' Overlapping Assets")
which are used in the operation of the Business and the nature of the usage by
the Business of Sellers' Overlapping Assets.
Section 5.27 Exhibits & Schedules. All the facts recited in the
Disclosure Schedule annexed hereto shall be deemed to be representations of fact
as though recited in this Article V.
xlii
Section 5.28 Disclaimer of Other Representations and Warranties. EXCEPT
AS EXPRESSLY SET FORTH IN THIS ARTICLE V, THE SELLER PARTIES MAKE NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT
OF THE SHARES OR ANY OF THEIR ASSETS (INCLUDING THE PURCHASED ASSETS),
LIABILITIES OR OPERATIONS, INCLUDING, WITH RESPECT TO MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE, AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE
HEREBY EXPRESSLY DISCLAIMED. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
THE SELLER PARTIES MAKE NO REPRESENTATION OR WARRANTY REGARDING ANY ASSETS OTHER
THAN THE SHARES AND THE PURCHASED ASSETS, AND NONE SHALL BE IMPLIED AT LAW OR IN
EQUITY.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BUYER
As an inducement to the Sellers to enter this Agreement and to
consummate the transactions contemplated hereby, the Buyers, jointly and
severally, represent and warrant to the Sellers as follows:
Section 6.1 Organization. Each of the Buyers is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as is now being conducted.
Section 6.2 Authority Relative to this Agreement. Each of the Buyers
has full corporate power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the board of directors of each of the
Buyers and no other corporate proceedings on the part of any of the Buyers are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Buyers, and assuming that this Agreement constitutes a valid
and binding agreement of the Sellers, constitutes a valid and binding agreement
of each of the Buyers, enforceable against each of the Buyers in accordance with
its terms, except that such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally or general principles of equity.
Section 6.3 Consents and Approvals; No Violation. Subject to the entry
and effectiveness of the Approval Order, neither the execution and delivery of
this Agreement by the Buyers nor the purchase by the Buyers of the Shares and
the Purchased Assets and the assumption by the Buyers of the Assumed Liabilities
and Assumed Agreements pursuant to this Agreement will (a) conflict with or
result in any breach of any provision of the Certificate of Incorporation or
Bylaws (or other similar governing documents) of any of the Buyers; (b) require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority which has not been otherwise
obtained or made; or (c) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the
xliv
terms, conditions or provisions of any material note, bond, mortgage, indenture,
agreement, lease or other instrument or obligation to which any of the Buyers is
a party or by which any of the Buyers' assets may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents have been obtained.
Section 6.4 Legal Proceedings and Judgments. There are no material
claims, actions, proceedings or investigations pending or, to the Buyers'
Knowledge, threatened against or relating to any of the Buyers before any court
or other Governmental Authority acting in an adjudicative capacity that could
reasonably be expected to have a material adverse effect on the Buyers' ability
to consummate the transactions contemplated hereby.
Section 6.5 Buyers' Financing. As of the date of this Agreement and on
the Closing Date, the Buyers have and will have funds sufficient to pay the
Purchase Price and all of their fees and expenses incurred in connection with
the transactions contemplated hereby, including the Cure Amount Payment in
respect of Assumed Agreements and any applicable transfer Taxes.
Section 6.6 Investment Purpose. The Buyers are acquiring the Shares
solely for the purpose of investment and not with a view to, or for offer or
sale in connection with, any distribution thereof.
ARTICLE VII
COVENANTS OF THE PARTIES
Section 7.1 Conduct of Business. (a) Except as described on Schedule 7.1(a) of
the Disclosure Schedule and except as required by the Bankruptcy Court, the
Bankruptcy Code, and any order or agreement relating to the use of cash
collateral or postpetition financing, during the period commencing on the date
of this Agreement and ending on the Closing Date, the Sellers shall, and shall
cause the Foreign Corporations to, (i) operate the Business in the usual,
regular and ordinary course, (ii) other than as permitted in writing by the
Buyers, preserve in all material respects the Business, its employees and its
operations, (iii) reasonably cooperate with the Buyers in communicating with the
employees employed in the conduct of the Business regarding the transactions
contemplated hereby, (iv) endeavor to preserve, in all material respects, the
goodwill and relationships with customers, suppliers, employees and others
having business dealings with the Business, in each case taking into account the
Sellers' status as a debtor under Chapter 11 of the Bankruptcy Code, (v)
maintain the books, records and accounts of the Sellers and Foreign Corporations
in accordance with prudent business practices, (vi) file, on a timely basis,
with the appropriate Governmental Authorities all Tax Returns required to be
filed and pay all Taxes due prior to the Closing Date, (vii) maintain, preserve
and protect all of the Purchased Assets and the assets of the Foreign
Corporations in the condition in which they exist on the date hereof, except for
ordinary wear and tear, and (viii) use commercially reasonable efforts to obtain
from third-parties all consents necessary to assign to the Buyers all agreements
assignable to the Buyers hereunder and to avoid defaults (other than any default
relating to or arising from the commencement of the Chapter 11 cases) under any
agreements to which any of the Foreign Corporations is a party.
xliv
(b) Prior to the Closing Date, without the prior written consent of the
Buyers, except as set forth in Schedule 7.1(b) of the Disclosure Schedule, the
Sellers shall not, and shall cause the Foreign Corporations not to:
(i) create, incur, assume or suffer to exist any material
Encumbrance upon the Purchased Assets or the assets of the Foreign
Corporations, other than (A) Permitted Encumbrances (all of which shall
be removed prior to Closing except for Closing Encumbrances), (B) the
liens in favor of the Prepetition Agent under the Prepetition Credit
Agreement (which shall be removed prior to Closing) and (C) the liens
in favor of the agent of the lenders under a postpetition cash
collateral agreement,
(ii) sell, lease (as lessor), transfer or otherwise dispose of
(other than sales and dispositions in the ordinary course of business)
any of the Purchased Assets or the assets of any Foreign Corporation,
(iii) take any action, or omit to take any action, which would
have the effect of artificially increasing Accounts Receivable or
Inventory or artificially reducing or deferring the payment of Accounts
Payable or the Foreign Corporation Closing Liabilities beyond levels
that would exist in the absence of this Agreement,
(iv) amend their certificates of incorporation, by-laws or
other organizational documents in a manner adverse to the Buyers,
(v) issue, sell, transfer, pledge, dispose of or encumber any
shares of any class or series of the capital stock of any of the
Foreign Corporations, or securities convertible into or exchangeable
for, or options, warrants, calls, commitments or rights of any kind to
acquire, any shares of any class or series of the capital stock of the
Foreign Corporations,
(vi) modify or amend in any material respect or terminate any
Material Agreement of the Foreign Corporations or any Assumed
Agreements or materially default under any Material Agreement of any of
the Foreign Corporations or, prior to the Petition Date, materially
default under any Assumed Agreement,
(vii) other than as contemplated by this Agreement or pursuant
to the Sellers' Chapter 11 Cases, take, or agree to or commit to take
any action that would materially impair the ability of the Sellers or
the Buyers to consummate the Closing in accordance with the terms
hereof or materially delay such consummation,
(viii) except with respect to bonus or retention plans
disclosed in Schedule 5.11(a) of the Disclosure Schedule and retention
and severance arrangements made in connection with the Sellers' Chapter
11 Cases, grant or agree to grant any bonus to any employee employed in
the conduct of the Business, or increase the rates of salaries or
compensation of such employees (other than increases made in the
ordinary course of business consistent with prior practices, in any
event not in excess of 5%) or increase or provide any new pension,
retirement or other employment benefits to any of the employees
employed in the conduct of the business,
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(ix) make any election with respect to the Foreign Corporations
relating to Taxes, or make any other Tax election that is inconsistent
with past practices, change any currently or previously effective
election relating to Taxes, or adopt or change any accounting method
relating to Taxes or cause a Foreign Corporation to enter into any
closing agreement relating to Taxes, settle or consent to any claim or
assessment relating to Taxes, waive the statute of limitations for any
such claim or assessment, or file any amended Tax Return or claim for
refund of Taxes,
(x) redeem or purchase any shares of their capital stock,
(xi) incur, assume, guarantee, endorse or otherwise become
liable for long-term third party indebtedness for borrowed money, or
incur, assume, guarantee, endorse or otherwise become liable for
short-term third party indebtedness for borrowed money exceeding
$200,000 in the aggregate from the date hereof until the Closing,
(xii) permit any insurance policy naming any Seller Party as a
beneficiary or as a loss payable payee to be canceled or terminated
without notice to the Buyers, except policies which are replaced
without diminution in or gaps in coverage,
(xiii) except any actions taken pursuant to the Bid Procedures
Order or the Chapter 11 Cases, take, or agree to or commit to take, any
action that would or is reasonably likely to result in (A) any of the
conditions to the Closing set forth in Article VIII not being
satisfied, (B) any of the representations and warranties of the Sellers
set forth in this Agreement which are not qualified by "Material
Adverse Effect", "materiality" or other similar qualifications not
being so true, complete and correct in all material respects and (C)
any of the representations and warranties of the Sellers set forth in
this Agreement which are qualified by "Material Adverse Effect",
"materiality" or other similar qualifications not being so true,
complete and correct,
(xiv) make any distributions of any assets other than cash and
cash equivalents (it being expressly agreed that the Seller Parties may
make any distributions of any and all cash and cash equivalents without
the consent of the Buyers),
(xv) with respect to the Foreign Corporations, incur any
material Liabilities other than in the ordinary course of business,
(xvi) make any change in the accounting methods or practices it
follows other than changes required by U.S. GAAP, or
(xvii) agree to do any of the foregoing.
Section 7.2 Access to Information; Maintenance of Records. (a) Between
the date of this Agreement and the Closing Date, the Seller Parties shall,
during ordinary business hours, upon reasonable notice (i) give the Buyers and
the Buyers' Representatives reasonable access to all supervisory employees and
to all books, records, plants, offices and other facilities and properties
relating to the Business to which the Buyers are not denied access by law, (ii)
permit the Buyers to make such reasonable inspections thereof as the Buyers may
reasonably request, including permitting a representative of the Buyers to
maintain a physical presence at each of the
xlvi
Business Real Properties at all times prior to the Closing, provided that such
representative of the Buyers shall not be present at any time during which due
diligence is being conducted by third parties in connection with the bankruptcy
proceedings or any other time (which shall be of a limited nature) at which the
Sellers' management reasonably believes that such presence would result in a
material impact on the Business, (iii) furnish the Buyers with such financial
and operating data and other information with respect to the Business as the
Buyers may from time to time reasonably request and (iv) furnish the Buyers with
a copy of any pleading, report, schedule or other document filed by Insilco with
the SEC or the Bankruptcy Court or received by Insilco with respect to the
Business; provided, however, that with respect to each of the provisions of this
Section 7.2, (A) any such physical presence which shall exist and any such
access shall be conducted in such a manner so as not to interfere with the
operation or conduct of the Business, (B) the Sellers shall not be required to
take any action which would constitute a waiver of the attorney-client privilege
and (C) the Sellers need not supply the Buyers or the Buyers' Representatives
with any information which the Sellers are under a legal obligation not to
supply or any information, documents or materials related to customer specific
costing and pricing information; provided, however, that at the request of the
Buyers, the Sellers shall provide customer specific costing and pricing
information to the Buyers' independent accountants if such independent
accountants shall have agreed with Insilco in writing not to provide such
information to the Buyers except solely on an aggregate basis. Notwithstanding
anything in this Section 7.2(a) to the contrary, the Buyers shall not have
access to any Employee Records or other personnel and medical records which, in
Insilco's good faith judgment, are sensitive or the disclosure of which could
subject Insilco to any meaningful risk of liability. To the extent that the
Buyers wish to have access to customers and suppliers of the Business prior to
the Closing, the Buyers shall coordinate such access with the Sellers and shall
be accompanied by an employee of the Sellers who is reasonably acceptable to the
Buyers.
(b) The Buyers and the Sellers acknowledge that they are
subject to the Confidentiality Agreement. All information furnished to or
obtained by the Buyers or any of the Buyers' Representatives or the Sellers or
any of the Sellers' Representatives pursuant to this Agreement shall be subject
to the provisions of the Confidentiality Agreement and shall be treated as
Confidential Information for all purposes of the Confidentiality Agreement,
subject to the terms of the Confidentiality Agreement. Furthermore, the Buyers
acknowledge that the Sellers or the Sellers' Representatives may furnish
Confidential Information to counsel for the Creditors' Committee and to the
Prepetition Agent and their respective counsel, subject to the provisions of the
Confidentiality Agreement.
(c) Between the Closing Date and the later of (x) the third
anniversary of the Closing Date or (y) the date of entry of an order of the
Bankruptcy Court closing the Chapter 11 Cases, or if converted to a case under
Chapter 7 of the Bankruptcy Code, an order of the Bankruptcy Court closing such
case, the Sellers and the Sellers' Representatives shall have reasonable access
to all of the books and records relating to the Business or the Purchased
Assets, including all information pertaining to the Assumed Agreements, all
Employee Records or other personnel and medical records required by Law, legal
process or subpoena, in the possession of the Buyers to the extent that such
access may reasonably be required by the Sellers in connection with the Assumed
Liabilities or the Excluded Liabilities, or other matters relating to or
affected by the operation of the Business and the Purchased Assets, provided,
however, that the Sellers and the Sellers' Representatives shall not have access
to any Employee Records or
xlvii
other personnel and medical records which, in the Buyers' good faith judgment,
are sensitive or the disclosure of which could subject the Buyers or their
Affiliates to any meaningful risk of liability. Such access shall be afforded by
the Buyers upon receipt of reasonable advance notice and during normal business
hours; provided, however, that (i) any such access shall be conducted in such a
manner as not to interfere unreasonably with the operation of the business of
the Buyers or their Affiliates, (ii) the Buyers shall not be required to take
any action which would constitute a waiver of the attorney-client privilege, and
(iii) the Buyers need not supply the Sellers with any information which the
Buyers are under a legal obligation not to supply. The Sellers shall be solely
responsible for any costs or expenses incurred by the Sellers pursuant to this
Section 7.2(c). If the Buyers shall desire to dispose of any such books and
records upon or prior to the expiration of such period, the Buyers shall, prior
to such disposition, give the Sellers a reasonable opportunity at the Sellers'
expense, to segregate and remove such books and records as the Sellers may
select. Furthermore, the Buyers acknowledge that the Sellers shall have
reasonable access to all Transferred Employees with respect to the litigation
matters set forth on Schedule 2.3(d) and Schedule 5.13 of the Disclosure
Schedule for so long as such matters are pending. In addition to the foregoing,
the Buyers agree to maintain the Employee Records in their possession for a
period of three (3) years after the Closing Date or such longer period(s) as
required by Law, and to give former and current employees of the Sellers
reasonable access to their own Employee Records during such period.
(d) The Sellers shall reasonably cooperate, and shall use all
reasonable efforts to cause their directors, officers, employees, accountants,
attorneys and other agents to reasonably cooperate, with the Audit Accountant in
connection with the preparation of such financial statements of the Business as
the Audit Accountant shall prepare on behalf of the Buyers, including providing
the Audit Accountant with reasonable access to all of the books and records of
the Business, reasonably responding to any inquiries or requests for information
from the Audit Accountant, making executive officers of the Sellers reasonably
available to meet with the Audit Accountant and discuss the Business' past
accounting practices and providing such other assistance as the Buyers and the
Audit Accountant may reasonably require in connection with the preparation of
such financial statements. The Audit Accountant shall be retained by the Buyers
in connection with the preparation of any such financial statements, including
the performance of the activities contemplated by Section 8.2(i), and the Buyers
shall be fully responsible for the fees and expenses of the Audit Accountant.
Section 7.3 Expenses. Except to the extent specifically provided
herein, in the Bid Procedures Order or in the Approval Order, whether or not the
transactions contemplated hereby are consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be borne by the party incurring such costs and expenses.
Section 7.4 Further Assurances. (a) Subject to the terms and conditions
of this Agreement, prior to the Closing each of the parties hereto shall use
their respective commercially reasonable efforts to take, or cause to be taken,
all action, and to do, or cause to be done, all things reasonably necessary,
proper or advisable under applicable Laws to consummate and make effective the
sale of the Shares and the Purchased Assets in accordance with this Agreement,
including using commercially reasonable efforts to ensure timely satisfaction of
the conditions precedent to each party's obligations hereunder and the
preparation, filing, execution and delivery of all forms, registrations and
notices required to be filed to consummate the
xlviii
Closing and the taking of such actions as are necessary to obtain any requisite
Permits or waivers from any Governmental Authority. Neither the Sellers, on the
one hand, nor the Buyers, on the other hand, shall, without the prior written
consent of the other parties, take any action which would reasonably be expected
to prevent or materially impede, interfere with, or delay the transactions
contemplated by this Agreement. From time to time on or after the Closing Date,
the Sellers shall, at the Buyers' expense, execute and deliver such documents to
the Buyers as the Buyers may reasonably request in order to more effectively
vest in the Buyers the Sellers' title to the Purchased Assets, subject to
Closing Encumbrances, and the Shares. From time to time after the date hereof,
the Buyers shall, at the Sellers' own expense, execute and deliver such
documents to the Sellers as the Sellers may reasonably request in order to more
effectively consummate the sale of the Purchased Assets and the Shares and the
assumption and assignment of the Assumed Liabilities and the Assumed Agreements
in accordance with this Agreement.
(b) In the event that any Purchased Asset shall not have been
conveyed to the Buyers at the Closing, the Sellers shall, subject to Section
7.4(c), use commercially reasonable efforts to convey such Purchased Asset to
the Buyers as promptly as is practicable after the Closing.
(c) To the extent that the Sellers' rights under any Assumed
Agreement may not be assigned without the consent of another Person and such
consent has not been obtained, this Agreement shall not constitute an agreement
to assign the same if an attempted assignment would constitute a breach thereof
or be unlawful, and the Sellers shall use commercially reasonable efforts
(without being required to make any payment to any third party or to incur any
economic burden), taking into account Sellers' status as a debtor under Chapter
11 of the Bankruptcy Code, to obtain any such required consent(s) as promptly as
reasonably possible. The Buyers agree to fully cooperate with Sellers in their
efforts to obtain any such consent (including the submission of such financial
or other information concerning the Buyers and the execution of any assumption
agreements or similar documents reasonably requested by a third party) without
being required to make any payment to any third party or to incur any economic
burden (other than the payment of any Cure Amount Payment required under Section
2.6(b)).
Section 7.5 Public Statements. Until the consummation of the Closing,
the Sellers and the Buyers shall consult with each other prior to issuing any
public announcement, statement or other disclosure with respect to this
Agreement or the transactions contemplated hereby, except that the parties may
make disclosures with respect to this Agreement and the transactions
contemplated hereby to the extent required by Law or by the rules or regulations
of any securities exchange or self-regulatory organization and to the extent and
under the circumstances in which the parties are expressly permitted by the
Confidentiality Agreement to make disclosures of Confidential Information.
Section 7.6 Governmental Authority Consents and Approvals. (a) The Sellers and
the Buyers shall each use commercially reasonable efforts to cooperate with each
other in determining and making any filings, notifications and requests for
approval required to be made and received prior to the Closing under applicable
Laws (collectively, the "Regulatory Approvals"). In connection with any
Regulatory Approvals, neither the Buyers nor the Sellers will, and the Buyers
and the Sellers will use commercially reasonable efforts not to, cause or permit
any of their officers, directors, partners or other Affiliates to, take any
action which could
xlix
reasonably be expected to materially and adversely affect the submission of any
required filings or notifications or the grant of any such approvals.
(b) Cooperation. Each party (i) shall promptly inform each
other of any communication from any Governmental Authority concerning this
Agreement, the transactions contemplated hereby, and any filing, notification or
request for approval made in connection herewith and (ii) shall permit the other
parties hereto to review in advance any proposed written communication or
information submitted to any such Governmental Authority in response thereto. In
addition, each of the Sellers and each of the Buyers agrees not to participate
in any meeting with any Governmental Authority in respect of any filings,
investigation or other inquiry with respect to this Agreement, the transactions
contemplated hereby or any such filing, notification or request for approval
unless it consults with the other parties hereto in advance and, to the extent
permitted by any such Governmental Authority, gives the other parties hereto the
opportunity to attend and participate thereat, in each case to the maximum
extent practicable. Subject to any restrictions under applicable Laws, each of
the Sellers and each of the Buyers shall furnish the other party with copies of
all correspondence, filings and communications (and memoranda setting forth the
substance thereof) between it and its Affiliates and their respective
representatives on the one hand, and the Governmental Authority or members of
its staff on the other hand, with respect to this Agreement, the transactions
contemplated hereby (excluding documents and communications which are subject to
preexisting confidentiality agreements and to the attorney-client privilege or
work product doctrine) or any such filing, notification or request for approval.
The Sellers and the Buyers shall also furnish the other parties with such
necessary information and assistance as such other parties and their Affiliates
may reasonably request in connection with their preparation of necessary
filings, registration, or submissions of information to the Governmental
Authority in connection with this Agreement, the transactions contemplated
hereby and any such filing, notification or request for approval. The Sellers
and the Buyers shall prosecute all required requests for approval with all
necessary diligence and otherwise use their respective reasonable best efforts
to obtain the grant thereof as soon as possible.
Section 7.7 Tax Matters. (a) Each party hereto will provide each other
with such assistance, cooperation and information (including access to books and
records) as either of them reasonably may request of the other (and the Buyers
shall cause the Foreign Corporations to provide such assistance, cooperation and
information) in filing any Tax Return, amended Tax Return or claim for refund,
determining any liability for Taxes or a right to a refund of Taxes or
participating in or conducting any audit or other proceeding in respect of Taxes
relating to the Foreign Corporations, (including, but not limited to, any claim
by the Foreign Corporations pertaining to the use or availability of net
operating losses), the Purchased Assets and the Business. The Sellers
acknowledge and agree that any Tax refunds payable to or paid to any Foreign
Corporation after the date hereof shall, after the Closing, notwithstanding
anything contained herein to the contrary, remain an asset of such Foreign
Corporation.
(b) Transfer Taxes. All excise, sales, use, transfer, value
added, registration, stamp, recording, documentary, conveyancing, franchise,
property, gains and similar Taxes, levies, charges and recording, filing and
other fees (collectively, "Transfer Taxes") incurred in connection with the
transactions contemplated by this Agreement shall be paid by the Buyers. The
Buyers shall, at their own expense, timely pay, and file all necessary Tax
returns and other
l
documentation (including any required notice of a bulk sale) with respect to,
all such Transfer Taxes and, only to the extent required by applicable law, the
Sellers shall join in the execution of any Tax returns and other documentation
at the Buyers' request. The Buyers shall, at their own expense, complete and
execute a resale or other exemption certificate with respect to the Purchased
Assets consisting of inventory, and shall provide the Sellers with an executed
copy thereof. Notwithstanding the foregoing, the Sellers shall cooperate with
the Buyers for the purpose of reducing any and all Transfer Taxes provided that
such cooperation shall not materially prejudice the Sellers in any way (the
Buyers shall reimburse the Sellers for all reasonable out-of-pocket expenses
incurred by the Sellers in fulfilling the Buyers' request(s)). Without limiting
the foregoing provisions of this Section 7.7(b), the parties hereby agree that
the transfer and delivery of title to any of the Purchased Assets presently
located in Mexico may occur, to the extent permitted by applicable law, either
in the United States or in Mexico at the sole option of the Buyers.
(c) FIRPTA Certification. In accordance with Treasury
Regulation section 1.1445-2(b)(2), each of the Sellers shall deliver to the
Buyers a certification of non-foreign status substantially in the form set forth
in Treasury Regulation section 1.1445-2(b)(2)(iii)(B) or in such other form as
may be specified by applicable Law.
(d) Allocation of Taxes. For purposes of Section 2.4(c), the
Buyers shall be liable for and shall be allocated all Taxes in respect of the
Purchase Assets with respect to taxable periods (or portions thereof) that end
after the Closing Date. For this purpose, Taxes that are payable with respect to
a taxable period that begins on or before the Closing Date and ends after the
Closing Date, the portion of any such Tax that is allocable to the portion of
the period beginning on the day following the Closing Date and allocated to the
Buyers shall be considered to equal the amount of such taxes for such entire
taxable period, multiplied by a fraction, the numerator of which is the number
of days in the portion of such taxable period that begins on the day following
the Closing Date and the denominator of which is the number of days in the
entire taxable period. For the avoidance of doubt, all Taxes imposed on the
Foreign Corporations shall be allocated to, and shall be the responsibility of,
the Buyers.
(e) Allocation of Purchase Price. The Buyers and the Sellers
shall (i) attempt in good faith, within sixty (60) days after the determination
of the Purchase Price pursuant to Article III, to agree on the allocation of the
sum of the Purchase Price and the Assumed Liabilities (and any adjustments
thereof) among the Shares and the Purchased Assets as of the Closing Date (the
"Allocation") in accordance with Section 1060 of the Code and the Treasury
Regulations thereunder and (ii) cooperate in connection with the preparation of
Internal Revenue Service Form 8594 for its timely filing. Except as otherwise
required by applicable Law, the Buyers and Sellers shall report for all Tax
purposes all transactions contemplated by this Agreement in a manner consistent
with the Allocation, if any, and shall not take any position inconsistent
therewith in any Tax Return, in any refund claim, in any litigation or
otherwise.
(f) Code Section 338(g) Election. The Buyers shall have the
right, but not the obligation, to make an election under Section 338(g) of the
Code with respect to any Foreign Corporation, and shall promptly notify the
Sellers in writing if such an election is made; provided, however, in the event
the Buyers make such an election with respect to any Foreign Corporation, the
Buyers shall be solely responsible for all additional costs and Taxes resulting
li
from making such election, and shall indemnify the Sellers and hold them
harmless against any such additional costs and Taxes. For this purpose, such
additional Taxes shall be determined by comparing the Tax consequences to the
Sellers as a result of the Code Section 338(g) election with the Tax
consequences that would have applied to the Sellers in the absence of the Code
Section 338(g) election and shall take into account the present value of the
amount of any net operating losses or tax credits of the Sellers that are
reduced, lost or otherwise foregone as a result of the Code Section 338(g)
election. In the event that the Buyers do not make an election under Section
338(g) with respect to a Foreign Corporation, for the remainder of the taxable
year of such Foreign Corporation in which taxable year the Closing occurs, the
Buyers shall cause such Foreign Corporation to refrain from paying a dividend or
otherwise distributing property to the extent that such dividend or distribution
would (i) increase the Sellers' or any of their Affiliates' liability for Taxes,
(ii) result in the recognition of, or change the character of, any income or
gain (including Subpart F income, as defined under the Code) that the Sellers or
any of their Affiliates must report on any Tax Return, or (iii) result in a
decrease of any credits against Tax (including credits for foreign Taxes paid or
deemed paid) that would otherwise be available to the Sellers or any of their
Affiliates.
Section 7.8 Employees. (a) Prior to the Sale Hearing, the Buyers shall
make offers of employment, effective as of the Closing Date, to all employees of
the Sellers listed on Schedule 7.8(a) of the Disclosure Schedule (as same may be
amended by the Buyers from time to time through the date of the Sale Hearing),
and shall provide Insilco with the general terms of such offers. Each such
employee who accepts the Buyer's offer of employment shall be referred to herein
as a "Transferred Employee". Each employee of the Foreign Corporations shall be
referred to herein as a "Foreign Corporation Employee". Each employee and former
employee of the Business other than the Transferred Employees and the Foreign
Corporation Employees shall be referred to herein as a "Retained Employee". No
provision contained in this Section 7.8 shall be construed as an agreement for,
or guarantee of, continued employment. The Buyers shall not, and shall be under
no obligation to, assume, continue or adopt any Liabilities with respect to any
Employee Plan.
(b) The Buyers shall extend to all Transferred Employees
eligibility to participate in employee benefit and compensation plans, including
without limitation welfare benefit plans, that are comparable to the employee
benefit and compensation plans that Bel Fuse Ltd. offers to its general employee
population.
(c) Provided that a Transferred Employee or a Foreign
Corporation Employee remains continuously employed by the Buyers on the day
following six (6) months after the Closing Date, for purposes of all employee
compensation plans, programs and arrangements in which the Transferred Employees
and the Foreign Corporation Employees may be eligible to participate after the
Closing Date, the Buyers shall cause each such plan, program or arrangement to
treat the prior service of each Transferred Employee and Foreign Corporation
Employee with Insilco, any Affiliate thereof, or any predecessor thereof, as
service rendered to the Buyers for purposes of benefits entitlements and benefit
accrual for non-retirement-type benefits and eligibility and vesting except to
the extent that such treatment would result in duplicative benefits. From and
after the Closing Date, the Buyers shall, with respect to any welfare benefit
plan in which any Transferred Employee or Foreign Corporation Employee may be
eligible to participate after the Closing Date, (i) cause any limitations as to
pre-existing
lii
conditions and any exclusions and waiting periods to be waived with
respect to the Transferred Employees and the Foreign Corporation Employees and
their eligible dependents and (ii) give each Transferred Employee and Foreign
Corporation Employee credit for the plan year in which the Closing occurs
towards applicable deductibles and annual out-of-pocket limits for expenses
incurred prior to the Closing Date.
(d) The Buyers shall be responsible for providing continuation
healthcare coverage in accordance with COBRA to the Retained Employees and their
qualified beneficiaries who incur or incurred a qualifying event prior to, on or
after the Closing Date. The Buyers shall be responsible for providing
continuation healthcare coverage in accordance with COBRA to all Transferred
Employees and their qualified beneficiaries who incur a qualifying event after
the Closing Date.
(e) The Buyers shall not be responsible for any Liability or
obligation under the WARN Act in respect of any employee or former employee of
the Business arising before or on the Closing Date, and in respect of any
Retained Employee, arising from employee termination after the Closing Date. The
Buyers shall be responsible for any Liability or obligation under the WARN Act
in respect of any Transferred Employee arising from employee termination after
the Closing Date. Immediately after execution of this Agreement, the Sellers
shall provide WARN notices in substantially the forms attached hereto as
Exhibits I-1 to I-4 (collectively, the "WARN Notices"), with (i) unrepresented
employees receiving Exhibit I-1, (ii) labor organization(s) and collective
bargaining representatives receiving Exhibit I-2, (iii) state dislocated workers
unit receiving Exhibit I-3 and (iv) chief elected official of the unit of local
government receiving Exhibit I-4. When the Sellers provide the WARN Notices to
the employees of (i) Stewart Connector Systems, Inc. and Signal Transformer Co.,
Inc., they shall do so by attaching the appropriate WARN Notice to the WARN
Notice cover letter attached hereto as Exhibit I-5 and (ii) InNet Technologies,
Inc., they shall do so by attaching the appropriate WARN Notice cover letter
attached hereto as Exhibit I-6.
(f) Unless otherwise specifically identified and defined as an
Assumed Liability herein, the Buyers shall not, with respect to all employees
(other than the Foreign Corporation Employees and Transferred Employees for
periods commencing after the Closing Date) have any responsibility for any
matters relating to the maintenance of personnel and payroll records, the
withholding and payment of federal, state and local income and payroll Taxes,
the payment of workers' compensation and unemployment compensation insurance,
salaries, wages, pension, welfare and other fringe benefits. The Buyers do not
assume any responsibility for severance pay that may be due to Retained
Employees, except as provided in this Section 7.8(f).
(g) Except as required by Law, the Buyers shall not assume any
Liability for compliance with all applicable labor and employment Laws relating
to the Transferred Employees and the Retained Employees in connection with their
employment by the Sellers during periods prior to the Closing Date and any such
Liability shall be a claim against only the Sellers' estate.
(h) Except for the Foreign Corporation Employees or unless
otherwise specifically identified and defined as an Assumed Liability herein, or
otherwise set forth in this Section 7.8 or as required by Law, the Buyers shall
not have any responsibility for any Liabilities
liii
under the Sellers' employee benefits plans, programs, agreements and
arrangements, including (i) any Liabilities relating to any noncompliance with
applicable Laws, including ERISA, the Internal Revenue Code and COBRA, and (ii)
any Liabilities which arise as a result of the Sellers' joint and several
liability through their relationship with any Affiliate.
(i) Except as provided for in this Section 7.8(j) or as
required by Law, if any of the Sellers has entered into employment, termination
or retention agreements with any employee of the Business pursuant to which
retention bonuses, or severance, or termination payments may be paid in
connection with the transactions contemplated hereby (the "Employee
Agreements"), the Sellers agree that the Buyers shall have no liability or
responsibility for any payments or costs related to the Employment Agreements
and that any Liability or responsibility in respect thereof shall be a claim
against only the Sellers' estate. With respect to all employees, except as
required by Law, the Buyers are not assuming and will not have any
responsibility for the continuation of any Employee Plan and the Buyers will not
be deemed a successor employer to any of the Sellers with respect to any
Employee Plan. Except as required by Law, no employee benefit plan adopted or
maintained by the Buyers will be deemed a successor plan of any of the Sellers.
(j) Notwithstanding anything to the contrary in this Section
7.8, the Sellers will, on the Closing Date, pay to each Retained Employee that
is covered by a severance plan (other than Retained Employees that are (i)
employees represented by a labor organization or (ii) employees covered by the
key employees severance plan) the severance payment due to such Retained
Employee pursuant to such severance plan (the actual aggregate amount of such
payments made by the Sellers, plus any related payroll taxes, hereinafter is
referred to as the "Retained Employee Payment Amount"); provided, however, that
it will be a condition precedent to any Retained Employee receiving any
severance payment pursuant to this Section 7.8(j) and the related severance plan
that such Retained Employee (i) be an employee of the Business on the Closing
Date or (ii) had been terminated as an employee of the Business by the Sellers
prior to the Closing Date without Cause. For purposes of this Section 7.8(j),
"Cause" means inappropriate or unsatisfactory conduct, unsatisfactory
performance, commission of an act involving fraud or moral turpitude, or
commission of an act that is considered a felony in the jurisdiction in which it
occurs. Any amounts paid pursuant to this Section 7.8(j) will not be included in
the calculation of benefits under any Employee Plan. At the Closing, the Buyers
shall reimburse the Sellers, in cash, an amount equal to the Retained Employee
Payment Amount. Nothing in this Section 7.8(j) shall change, modify or alter the
employment of any employee of the Business, who is currently an employee at
will, as an employee at will whose employment may be terminated by the Sellers,
with or without Cause, at any time.
Section 7.9 Litigation Support. In the event and for so long from and
after the Closing Date as any party hereto is actively contesting or defending
against any action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand in connection (other than litigation among the parties hereto
and/or their respective Affiliates arising out of this Agreement, the Ancillary
Agreements or the transactions contemplated thereby) with (a) any transaction
contemplated under this Agreement or (b) any fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing Date involving
the Business, the parties hereto will cooperate with the contesting or defending
party and its counsel in the contest or defense, make available their
liv
personnel, and provide such testimony and access to their books and records as
shall be reasonably necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending party. In the event
that the Approval Order is the subject of an appeal, the Buyers and the Sellers
agree to use commercially reasonable efforts to seek an expedited review and
decision of such appeal and to seek the dissolution of any stay which might be
entered in connection with such an appeal; provided that each party shall bear
the cost of complying with this sentence as it relates to any appeal and the
dissolution of any stay in connection therewith.
Section 7.10 Notification. Sellers shall notify the Buyers and keep the
Buyers advised of the occurrence, to the Knowledge of the Sellers, of (a) any
litigation or administrative proceeding pending or threatened against any of the
Sellers which could, if adversely determined, have a Material Adverse Effect,
(b) any act or omission which would cause any of the Sellers' representations
herein to be inaccurate in any material respect (or, with respect to
representations qualified as to materiality, in any respect), including by way
of updating any Disclosure Schedules and (c) any material damage or destruction
of any of the Purchased Assets or the assets of the Foreign Corporations. The
Buyers shall notify and keep Insilco advised of the occurrence of any event or
occurrence which could reasonably be expected to materially adversely affect the
Buyers' ability to consummate the transactions contemplated hereby. No such
notice shall be deemed to cure any breach of any representation or warranty made
in this Agreement or have any effect for the purpose of determining satisfaction
of the conditions set forth in Article VIII hereof or the compliance by the
Sellers with any covenant set forth herein.
Section 7.11 Submission for Bankruptcy Court Approval. On the Petition
Date or as soon as practicable thereafter, the Sellers shall file (a) a motion
or motions and supporting papers (including, a form of order substantially in
the form and substance of the Bid Procedures Order) seeking the entry of an
order by the Bankruptcy Court approving the Overbid Procedures and (b) a motion
for approval of this Agreement and supporting papers (including the Approval
Order) seeking entry of the Approval Order, all in a form and substance
reasonably acceptable to the Buyers. The Bid Procedures Order and the Approval
Order may, at the Sellers' option, be sought under one combined set of motion
papers, which shall be in form and substance reasonably acceptable to the
Buyers. All parties hereto shall use their commercially reasonable efforts to
have the Bankruptcy Court enter the Bid Procedures Order as soon as practicable
following the filing of the motion therefor. The Sellers shall give appropriate
notice under the Bankruptcy Code of the request for such relief, including such
additional notice as the Bankruptcy Court shall direct, and provide appropriate
opportunity for hearing, to all parties entitled thereto, of all motions,
orders, hearings, or other proceedings relating to this Agreement or the
transactions contemplated hereby.
Section 7.12 Overbid Procedures. The Buyers and the Sellers acknowledge
that the Sellers must take reasonable steps to demonstrate that they have sought
to obtain the highest and best price for the Purchased Assets and the Shares and
the consummation of the transactions contemplated by this Agreement, including
giving notice thereof to the Sellers' creditors and other interested parties,
providing information about the Business to prospective bidders (subject to
appropriate confidentiality agreements), entertaining higher and better offers
from such prospective bidders, and, if necessary, conducting an auction. To
facilitate the foregoing, the Sellers shall seek entry of the Bid Procedures
Order, which, among other things, shall provide for
lv
the bidding provisions and procedures as set forth in Exhibit A to the Bid
Procedures Order (the "Overbid Procedures"). These procedures shall include the
following provisions:
(a) The Sellers shall consider as higher and better offers (the
"Overbids") only those offers that meet the following requirements:
(i) Overbid Deadline. A Qualified Bidder (as defined in
Exhibit A to the Bid Procedures Order) that desires to make a
bid shall deliver written copies of its bid to (A) Gleacher
Partners LLC, 660 Madison Avenue, New York, New York 10021,
Attn: William D. Forrest, (B) Insilco Technologies, Inc., 425
Metro Place North, Fifth Floor, Dublin, Ohio 43017, Attn: David
A. Kauer, (C) Shearman & Sterling, 599 Lexington Avenue, New
York, New York 10022, Attn: Constance A. Fratianni, and (D)
Sidley Austin Brown & Wood, Bank One Plaza, 10 S. Dearborn
Street, Chicago, Illinois 60603, Attn: Doug Williams, not later
than such date and time as is specified in the Bid Procedures
Order (the "Bid Deadline"). The Sellers may extend the Bid
Deadline in their sole discretion, but shall have no obligation
to do so. If the Sellers extend the Bid Deadline, they shall
promptly notify the Buyers and all other Qualified Bidders of
such extension; provided that any extension of the Bid Deadline
shall be subject to the approval of the Prepetition Agent;
provided further that Sellers may not extend the Bid Deadline
to a date that is less than two (2) Business Days prior to the
Auction Date.
(ii) Overbid Requirements. A bid is a letter from a
Qualified Bidder (other than the Buyers, whose participation as
a Qualified Bidder shall be on the terms set forth in this
Agreement) stating that (A) the Qualified Bidder offers to
purchase the Purchased Assets and the Shares upon the terms and
conditions set forth in a copy of this Agreement attached to
such letter, marked to show those amendments and modifications
to this Agreement, including price, terms, and assets to be
acquired, that the Qualified Bidder proposes (a "Marked
Agreement") and (B) the Qualified Bidder's offer is irrevocable
until the earlier of forty-eight (48) hours after the closing
of the sale of the Purchased Assets and the Shares or such date
as is specified in the Bid Procedures Order. A Qualified Bidder
(other than the Buyers) shall accompany its bid with written
evidence of a commitment for financing or other evidence of
ability to consummate the transaction. The Sellers will
consider a bid only if the bid:
(A) provides overall value for the Purchased
Assets and the Shares to the Sellers of at least
$1,500,000 over the Purchase Price in the Asset
Purchase Agreement;
(B) is on terms that, in the Sellers'
reasonable business judgment, are not materially more
burdensome or conditional than the terms of this
Agreement;
lvi
(C) is not conditioned on obtaining
financing or on the outcome of unperformed due
diligence by the bidder with respect to the assets
sought to be acquired;
(D) does not request or entitle the bidder
to any topping fee, termination fee, expense
reimbursement or similar type of payments; and
(E) is received by the Bid Deadline.
A bid received from a Qualified Bidder (as defined in the
Overbid Procedures) that meets the above requirements is a
"Qualified Bid." A Qualified Bid will be valued based upon
factors such as the net value provided by such bid (including
consideration of any obligations of the Sellers in respect of
any Topping Fee) and the likelihood and timing of consummating
such transaction. The Buyers' offer contained in this
Agreement shall constitute a Qualified Bid.
(iii) Deposit Requirement. All initial Overbids shall be
accompanied by a deposit of Five Hundred Thousand Dollars
($500,000) (the "Deposit") payable by wire transfer to an
escrow agent designated by the Sellers. Following the Auction
or the Auction Date if no Qualified Bids are received, the
Sellers shall seek the approval of the Bankruptcy Court of the
highest or best offer submitted for the Purchased Assets and
the Shares (the "Successful Bid" and the bidder making such
bid, the "Successful Bidder") and, in the event that the sale
to the Successful Bidder is not consummated (to the extent
that there is another bid), the next highest and best offer
(the "Backup Bid", and such bidder, the "Backup Bidder"). The
Deposit submitted by the Successful Bidder, together with
interest thereon, shall be applied against the payment of the
cash portion of the consideration upon closing of the sale to
the Successful Bidder. If the Successful Bidder fails to
consummate the purchase of the Purchased Assets and the Shares
due to such party's breach of its purchase agreement with the
Sellers, then the Sellers shall retain the Deposit of such
Successful Bidder, if any, as liquidated damages and continue
with the sale of the Purchased Assets and the Shares to the
Backup Bidder. Within three (3) Business Days after the
closing of the sale of the Purchased Assets, any Deposit (A)
not applied to the purchase of such Purchased Assets and the
Shares or (B) not retained by the Sellers due to a breach by
the Successful Bidder shall, together with interest, be
returned to the appropriate bidders.
(b) If, prior to the Bid Deadline, the Sellers have received at
least one Qualified Bid that the Sellers determine is higher or
otherwise better than the bid of the Buyers set forth in this
Agreement, the Sellers shall conduct an auction (the "Auction") with
respect to the Purchased Assets and the Shares and provide to the
Buyers and all Qualified Bidders the opportunity to submit additional
bids at the Auction. The Auction shall take place no later than such
date and time as is specified in the Bid Procedures Order (the "Auction
Date"), at the offices of Shearman & Sterling, 599 Lexington Avenue,
New York, New York 10022, or such later time or other place as the
Sellers shall notify the Buyers and all other Qualified Bidders who
have submitted Qualified Bids and expressed
lvii
their intent to participate in the Auction, as set forth above, but in
no event shall the Auction occur later than two Business Days prior to
the Sale Hearing scheduled in the Bid Procedures Order. Only Qualified
Bidders will be eligible to participate at the Auction. At least two
(2) Business Days prior to the Auction, each Qualified Bidder who has
submitted a Qualified Bid must inform the Sellers whether it intends to
participate in the Auction. The Sellers may, at their option, provide
or make available copies of any Qualified Bid(s) that the Sellers
believe are the highest or otherwise best offer(s) to all Qualified
Bidders who intend to participate in the Auction prior to the
commencement thereof, but are required to provide copies of any
Qualified Bid(s) to the Buyers within two (2) Business Days after
receipt thereof and, in any event, no later than two (2) Business Days
prior to the Auction Date.
Based upon the terms of the Qualified Bids received, the
number of Qualified Bidders participating in the Auction, and such
other information as the Sellers determine is relevant, the Sellers, in
their sole discretion, may conduct the Auction in the manner it
determines will achieve the maximum value for the Purchased Assets and
the Shares. At the beginning of the Auction, a representative of the
Sellers shall announce the amount of the bid that is at such time
determined by the Sellers to be the highest and best bid. Thereafter,
all additional bids shall be in increments of $500,000 or integral
multiples thereof. The Sellers may adopt such other rules for bidding
at the Auction, that, in the Sellers' business judgment, will better
promote the goals of the bidding process and that are not inconsistent
with any of the provisions of the Bid Procedures Order, the Bankruptcy
Code or any order of the Bankruptcy Court entered in connection
herewith. Prior to the start of the Auction, the Sellers will inform
the Qualified Bidders participating in the Auction of the manner in
which the Auction will be conducted.
As soon as practicable after the conclusion of the Auction,
the Sellers, in consultation with their legal and financial advisors
and the Prepetition Agent, shall (i) review each Qualified Bid on the
basis of financial and contractual terms and the factors relevant to
the sale process, including those factors affecting the speed and
certainty of consummating the sale and any obligations of the Sellers
in respect of any Topping Fee, and (ii) identify the highest or
otherwise best offer for the Purchased Assets and the Shares at the
Auction. At the Sale Hearing, the Sellers shall present the Successful
Bid or, if required pursuant to Section 7.12(a)(iii), the Backup Bid to
the Bankruptcy Court, for approval.
(c) If the Buyers do not buy the Purchased Assets and the
Shares at the sale of the Purchased Assets and the Shares approved at
the Sale Hearing (an "Auction Sale"), the Buyers are not then in
material breach of any material provision of this Agreement (other than
any breach which Buyers shall have cured within ten (10) Business Days
of receipt of notice thereof), the Buyers have not terminated this
Agreement and an Auction Sale of the same is consummated with a party
other than the Buyers, then the Buyers will be entitled to receive, as
a "topping fee" out of the proceeds of the consummated Auction Sale, an
amount equal to the sum of (i) $1,050,000 (the "Topping Fee") and (ii)
reimbursement of all reasonable and documented out-of-pocket expenses
incurred in connection with the transactions contemplated hereby
(including, but not limited to, legal,
lviii
accounting and other professional fees) up to $400,000 in the aggregate
(the "Expense Reimbursement").
(d) The Buyers shall be permitted to credit the amount of the
Topping Fee and the Expense Reimbursement to their bid if they make a
competing bid at the Auction Sale as a result of which the Buyers shall
be permitted to match the dollar value of any competing bid submitted
by another entity by submitting a bid in an amount at least equal to
the difference between the bid to be matched minus the amount of the
Topping Fee and the Expense Reimbursement.
Section 7.13 Collection of Receivables. If, after the Closing, the
Sellers shall receive any payment from any account debtor with respect to any
Accounts Receivable included in the Purchased Assets, the Sellers shall promptly
endorse such payment to the Buyers.
Section 7.14 Overlapping Assets. The Sellers shall use commercially
reasonable efforts to make Sellers' Overlapping Assets available for the use of
the Buyers with respect to the Business, as currently used therein, at no charge
to the Buyers, for a period of ninety (90) days following the Closing, and the
Buyers shall use commercially reasonable efforts to make Buyers' Overlapping
Assets available for the use of the Sellers with respect to Sellers' Retained
Business, as currently used therein, at no charge to the Sellers, for a period
of ninety (90) days following the Closing. Nothing in this Section 7.14 shall be
construed as restricting the Sellers' or the Buyers' right to encumber or
transfer Sellers' Overlapping Assets or Buyers' Overlapping Assets, as the case
may be.
Section 7.15 Mail Received After the Closing. Following the Closing,
the Buyers may receive and open all mail addressed to the Sellers and deal with
the contents thereof in their discretion to the extent that such mail and the
contents thereof relate to the Purchased Assets, the Business, the Foreign
Corporations or any of the Assumed Liabilities. The Buyers shall promptly
deliver or cause to be delivered to the Sellers all mail received by the Buyers
after the Closing addressed to the Sellers which does not relate to the
Purchased Assets, the Business, the Foreign Corporations or the Assumed
Liabilities.
Section 7.16 Guarantees. Insilco irrevocably and unconditionally
guarantees, as a primary obligor and not merely as a surety, the full and prompt
performance by each Seller of its obligations, covenants and agreements under
the terms of this Agreement and each Ancillary Agreement to which a Seller may
be a party. Insilco waives all presentment, demands, protest and notice of
protest of this guarantee.
Section 7.17 Sellers Guarantees. To the extent any of Insilco Holding
Co. or any of the Sellers shall have guaranteed any Liabilities of the Foreign
Corporations to a third party, each of Bel Fuse Ltd. and Bel Fuse Macau, L.D.A.
shall prior to or as of the Closing: (a) provide a substantially similar
guarantee of such Liability to such third party; (b) use all reasonable efforts
to cause such third party to release Insilco Holding Co. and any of the Sellers
from such guarantee; and (c) indemnify Insilco Holding Co. and the Sellers from
any and all Losses related to such guarantee. From the date hereof until
Closing, neither Insilco nor any of its Affiliates shall enter into any new
guarantees of the obligations of the Foreign Corporations.
lix
Section 7.18 Glen Rock Facility. Prior to Closing, the Sellers shall
(a) use all reasonable efforts to acquire fee simple title to the Glen Rock
Property by payment of all outstanding amounts due under the Glen Rock Agreement
and (b) if such title is obtained, convey title to the Glen Rock Property to the
Buyers at the Closing (and in such instance, the Glen Rock Property shall be
deemed to be Owned Real Property for all purposes of this Agreement). If the
Sellers are unable to acquire title to the Glen Rock Property, then the Sellers
shall (a) assume the Glen Rock Agreement and (b) cause the assignment of the
Glen Rock Agreement to the Buyers pursuant to Section 365 of the Bankruptcy Code
or, if Section 365 of the Bankruptcy Code is unavailable with respect to the
Glen Rock Agreement, use all reasonable efforts to assign or cause to be
assigned the Glen Rock Agreement to the Buyers, including, without limitation,
obtaining the consent of the York County Industrial Development Corporation and
The Pennsylvania Industrial Development Authority to such assignment. Upon such
assignment of the Glen Rock Agreement to the Buyers, the Glen Rock Agreement
shall be deemed to be an Assumed Agreement for all purposes of this Agreement
and the Sellers shall pay any and all amounts to be cured under the Glen Rock
Agreement pursuant to Section 365(a) of the Bankruptcy Code; provided that in
the event that the Sellers shall have assigned or caused to have been assigned
the Glen Rock Agreement to the Buyers, the Purchase Price shall be reduced at
Closing by an amount equal to the remaining payments due under the Glen Rock
Agreement as of the Closing plus $10,000 in consideration of the cost incurred
or to be incurred by the Buyers in connection with such assignment of the Glen
Rock Agreement.
ARTICLE VIII
CONDITIONS TO CLOSING
Section 8.1 Conditions to Each Party's Obligations to Effect the
Closing. The respective obligations of each party to effect the sale and
purchase of the Shares and the Purchased Assets shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) no preliminary or permanent injunction or other order,
judgment or decree by any federal or state court which prevents the
consummation of the sale of a material part of the Shares and the
Purchased Assets contemplated hereby shall have been issued and remain
in effect (each party agreeing to use its commercially reasonable
efforts to have any such injunction, order or decree lifted) and no
statute, rule or regulation shall have been enacted by any Governmental
Authority which prohibits the consummation of the sale of the Shares
and the Purchased Assets;
(b) the Bankruptcy Court shall have entered the Approval Order
substantially in the form and substance of Exhibit E and such Approval
Order shall be final and non-appealable; and
(c) the Escrow Agent shall have executed the Escrow Agreement.
Section 8.2 Conditions to Obligations of the Buyers. The obligation of
the Buyers to effect the purchase of the Shares and the Purchased Assets
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date of the following additional conditions:
lx
(a) (i) the Sellers shall have performed and complied in all
material respects with the covenants contained in this Agreement
which are required to be performed and complied with by the Sellers
at or prior to the Closing; (ii) the representations and warranties
of the Sellers set forth in this Agreement that are not qualified by
"Material Adverse Effect", "materiality" or other similar
qualifications shall each be true, complete and correct in all
material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to
the extent any such representation and warranty expressly speaks as
of an earlier date, which representation and warranty need only be so
true, complete and correct as of such earlier date); and (iii) the
representations and warranties of the Sellers set forth in this
Agreement that are qualified by "Material Adverse Effect",
"materiality" or other similar qualifications shall each be true,
complete and correct as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to
the extent any such representation and warranty expressly speaks as
of an earlier date, which need only be so true, complete and correct
as of such earlier date);
(b) the Buyers shall have received a certificate from the
chief executive officer of Insilco, dated as of the Closing Date, to
the effect that, to the best of such chief executive officer's
knowledge, the conditions set forth in Section 8.2(a) have been
satisfied;
(c) the Shares and the Purchased Assets shall have been
released from all Encumbrances (other than Closing Encumbrances with
respect to the Purchased Assets) and there shall be no Encumbrances
on the Shares and the Purchased Assets (other than Closing
Encumbrances with respect to the Purchased Assets);
(d) since the date hereof, there shall have been no: (i)
Material Adverse Effect or (ii) material damage, destruction or loss
to any tangible assets with a value in excess of $100,000
individually or $500,000 in the aggregate, unless such damage,
destruction or loss is covered by insurance the proceeds of which are
used by Sellers to repair or replace such tangible Assets or which
are payable to the Buyers in accordance with this Agreement or
otherwise made payable to the Buyers;
(e) the Approval Order shall provide that any and all
Encumbrances on the Purchased Assets (other than Closing
Encumbrances) and the Shares shall, upon Closing, attach only to the
proceeds of the transactions contemplated hereby and not to the
Shares and the Purchased Assets;
(f) the Buyers shall have received the other items to be
delivered pursuant to Section 4.2;
(g) the Sellers shall have delivered to Buyers evidence that
(i) all Liabilities owed by the Foreign Corporations to Insilco
and/or any of its Affiliates or Subsidiaries shall have been canceled
and that the Foreign Corporations shall have no further Liability
with respect thereto and (ii) all Liabilities owed to the Foreign
Corporations by Insilco and/or any of its Affiliates or Subsidiaries
shall have been canceled and that
lxi
Insilco and/or any of its Affiliates or Subsidiaries shall have no
further Liability with respect thereto;
(h) (i) all authorizations, consents, waivers, approvals or
other actions legally required in connection with the execution,
delivery and performance of this Agreement and the instruments of
transfer by the Sellers and the consummation by the Sellers of the
transactions contemplated hereby and thereby shall have been obtained
(without the imposition of any material conditions) and shall be in
full force and effect; (ii) the Sellers shall have obtained any
material authorizations, consents, waivers, approvals or other
actions required to prevent a material breach or default by the
Sellers under any of the Assumed Agreements; and (iii) all material
authorizations, consents, waivers, approvals or other actions
necessary to permit the Buyers to operate the Business in compliance
with all applicable Laws immediately after the Closing shall have
been obtained and shall be in full force and effect;
(i) there shall have been delivered to the Buyers audited
balance sheets of the Business as of December 31, 2001 and October
31, 2002 and audited income statements, audited statements of cash
flows and audited statements of changes in stockholders' equity of
the Business for the years ended December 31, 2000 and December 31,
2001 and the ten month period ended October 31, 2002, together with
the notes to such financial statements (such financial statements and
notes, the "Audited Financial Statements"), which Audited Financial
Statements shall have been prepared in accordance with U.S. GAAP and
shall be in compliance with Regulation S-X of the Securities and
Exchange Commission; the Audit Accountant (i) shall have completed
its audit of the Audited Financial Statements, (ii) shall have issued
to the Buyers an unqualified opinion with respect to the Audited
Financial Statements and (iii) shall have consented no more than four
(4) days prior to Closing to the inclusion of such opinion in a
Current Report on Form 8-K to be filed by Bel Fuse Inc. with the
Securities and Exchange Commission immediately after the Closing is
consummated; and
(j) pursuant to Section 7.18, the Sellers shall be in possession
of all necessary documentation to either (i) convey title to the Glen
Rock Property to the Buyers or (ii) if the Sellers shall not be able
to convey title to the Glen Rock Property to the Buyers, assign or
cause to have assigned the Glen Rock Agreement to the Buyers (and pay
all cure amounts in connection therewith).
Any condition specified in this Section 8.2 may be waived by the Buyers;
provided that no such waiver shall be effective against the Buyers unless it is
set forth in a writing executed by the Buyers.
Section 8.3 Conditions to Obligations of the Sellers. The obligation of
the Sellers to effect the sale of the Shares and the Purchased Assets
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date of the following additional conditions:
(a) (i) the Buyers shall have performed and complied in all
material respects with the covenants contained in this Agreement which
are required to be performed and complied with by the Buyers at or
prior to the Closing; (ii) the representations and
lxii
warranties of the Buyers set forth in this Agreement that are not
qualified by "materiality" or other similar qualifications shall each
be true, complete and correct in all material respects as of the date
of this Agreement and as of the Closing Date as though made on and as
of the Closing Date (except to the extent any such representation and
warranty expressly speaks as of an earlier date, which representation
and warranty need only be so true, complete and correct as of such
earlier date); and (iii) the representations and warranties of the
Buyers set forth in this Agreement that are qualified by "materiality"
or other similar qualifications shall each be true, complete and
correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent any
such representation and warranty expressly speaks as of an earlier
date, which need only be so true, complete and correct as of such
earlier date);
(b) the Sellers shall have received a certificate from an
authorized officer of the Buyers, dated as of the Closing Date, to the
effect that, to the best of such officer's knowledge, the conditions
set forth in Section 8.3(a) have been satisfied; and
(c) the Sellers shall have received the other items to be
delivered to it pursuant to Section 4.3.
Any condition specified in this Section 8.3 may be waived by the Sellers;
provided that no such waiver shall be effective against the Sellers unless it is
set forth in writing executed by Insilco.
ARTICLE IX
TERMINATION AND ABANDONMENT
Section 9.1 Termination. This Agreement may be terminated at any time
prior to the Closing by:
(a) mutual written consent of the Sellers and the Buyers;
(b) the Buyers if:
(i) the Board of Directors of any of the Sellers shall
have withdrawn its support for the transactions contemplated
hereby or modified its support for the transactions
contemplated hereby in a manner adverse to the Buyers; or
(ii) the Chapter 11 Cases are converted from cases under
Chapter 11 of the Bankruptcy Code to cases under Chapter 7 of
the Bankruptcy Code;
(c) the Buyers, if there has been (i) a material violation or
breach by any of the Sellers of any (A) representation or warranty made
by it contained in this Agreement which is not qualified by
"materiality" or "Material Adverse Effect" or (B) any covenant made by
it contained in this Agreement or (ii) a violation or breach of any
representation or warranty made by it contained in this Agreement which
are qualified by "materiality" or "Material Adverse Effect" which, in
the case of either clause (i) or (ii), has prevented the satisfaction
of any condition to the obligations of the Buyers to effect the Closing
and
lxiii
such violation or breach has not been cured by the Sellers within ten
(10) Business Days of receipt of written notice thereof or waived by
the Buyer;
(d) the Sellers, if there has been a material violation or
breach by the Buyers of any covenant, representation or warranty made
by it contained in this Agreement which has prevented the satisfaction
of any condition to the obligations of the Sellers to effect the
Closing and such violation or breach has not been cured by the Buyers
within ten (10) Business Days of receipt of written notice thereof or
waived by the Sellers;
(e) the Sellers or the Buyers, if (i) there shall be any law or
regulation that makes consummation of the transactions contemplated
hereby illegal or otherwise prohibited or (ii) consummation of the
transactions contemplated hereby would violate any nonappealable final
order, decree or judgment of (A) the Bankruptcy Court or (B) any court
or Governmental Authority having competent jurisdiction;
(f) the Sellers, if the Bankruptcy Court enters an order
approving a sale of the Shares and the Purchased Assets other than the
sale thereof contemplated by this Agreement to the Buyers or any of
their Affiliates (a "Third-Party Sale");
(g) the Buyers or the Sellers, if the Bid Procedures Order has
not been entered by the Bankruptcy Court within forty-five (45) days
after the Petition Date; provided that the Buyers or the Sellers, as
the case may be, shall not be entitled to terminate this Agreement
pursuant to this Section 9.1(g) if the failure to obtain such approval
within such time period results primarily from such party itself
breaching any representation, warranty or covenant contained in this
Agreement;
(h) the Buyers or the Sellers, if the Approval Order has not
been entered by the Bankruptcy Court within forty-five (45) days after
the entry of the Bid Procedures Order on the docket of the Bankruptcy
Court; provided that the Buyers or the Sellers, as the case may be,
shall not be entitled to terminate this Agreement pursuant to this
Section 9.1(h) if the failure to obtain such approval within such time
period results primarily from such party itself breaching any
representation, warranty or covenant contained in this Agreement; or
(i) the Buyers or the Sellers, if the Closing shall not have
occurred on or prior to March 31, 2003 (the "Termination Date");
provided that the Buyers or the Sellers, as the case may be, shall not
be entitled to terminate this Agreement pursuant to this Section 9.1(i)
if the failure of the Closing to occur on or prior to such date results
primarily from such party itself breaching any representation, warranty
or covenant contained in this Agreement.
Section 9.2 Procedure and Effect of Termination. In the event of
termination of this Agreement and abandonment of the transactions contemplated
hereby by either or both of the parties pursuant to Section 9.1, written notice
thereof shall forthwith be given by the terminating party to the other parties
and this Agreement shall terminate and the transactions contemplated hereby
shall be abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
lxiv
(a) said termination shall be the sole remedy of the parties
hereto with respect to breaches of any covenant, representation or
warranty contained in this Agreement and none of the parties hereto nor
any of their respective trustees, directors, officers or Affiliates, as
the case may be, shall have any liability or further obligation to the
other parties or any of their respective trustees, directors, officers
or Affiliates, as the case may be, pursuant to this Agreement, except
for the parties hereto in each case as stated in this Section 9.2,
Section 9.3, Section 10.15 and in Sections 7.2(b) and 7.3, and upon a
willful breach by a party, in which case the non-breaching party shall
have all rights and remedies existing at law or in equity; provided,
however, the Seller Parties shall not be responsible for liability for
any misrepresentation or breach of any warranty or covenant by any
Seller Party contained in this Agreement prior to the time of such
termination;
(b) all filings, applications and other submissions made
pursuant to this Agreement, to the extent practicable, shall be
withdrawn from the agency or other Person to which they were made; and
(c) all Confidential Information from the Seller Parties shall
be returned to the Seller Parties or destroyed, and all Confidential
Information from the Buyers shall be returned to the Buyers or
destroyed (provided that the party doing such destruction shall deliver
a written certification of such destruction to the other party).
Section 9.3 Liquidated Damages. (a) If the Buyers shall terminate this
Agreement pursuant to (i) Section 9.1(i) and as of the Termination Date (A) the
closing condition set forth in Section 8.2(j) shall not have been satisfied or
waived by the Buyers and (B) the closing conditions specified in Sections
8.1(a), 8.1(b) and 8.3(a) shall have been satisfied or waived or (ii) Section
9.1(c), then the Buyers shall be entitled to the Expense Reimbursement as
liquidated damages from the Sellers, subject to the proviso in Section 9.3(b).
(b) If (i) the Buyers shall terminate this Agreement pursuant to
Sections 9.1(b)(i) or 9.1(c) and (ii) the Sellers shall have committed fraud in
connection with the transactions contemplated by this Agreement or materially
and willfully breached their obligations to sell the Purchased Assets and the
Shares to the Buyers pursuant to Articles II, III and IV of this Agreement
(except if the Sellers sell the Purchased Assets and the Shares to a third party
pursuant to Section 7.12 or an Approval Order, in which case the provisions of
Section 7.12 shall govern), then the Buyers shall be entitled to the Topping Fee
and the Expense Reimbursement as liquidated damages from the Sellers; provided,
however, that if the Buyers are entitled to the Topping Fee and the Expense
Reimbursement as liquidated damages from the Sellers pursuant to this Section
9.3(b), then the Buyers shall not also be entitled to the Expense Reimbursement
pursuant to Section 9.3(a).
(c) Any payment required to be made to the Buyers pursuant to either
Section 7.12 or Section 9.3(a) or (b) shall be made by wire transfer of same day
funds to an account designated by the Buyers. In the event that a payment is due
to the Buyers pursuant to Section 7.12, such payment shall be made on the date
on which the sale of the Business to the Successful Bidder, Backup Bidder or any
other Person that acquires the Business as a result of and in connection with a
bid submitted at the Auction is closed. In the event that a payment is due to
lxv
the Buyers pursuant to Section 9.3(a) or (b), such payment shall be made within
two (2) Business Days of the date the Buyers terminate this Agreement.
(d) The Sellers obligation to pay the Topping Fee and the Expense
Reimbursement (whether pursuant to Section 7.12 or Section 9.3(a) or (b)) shall
survive the termination of this Agreement and, provided that they are approved
by the Bankruptcy Court as part of the Bid Procedures Order, shall constitute an
administrative expense in the Sellers' Chapter 11 Cases or any subsequent
conversion of the Sellers' Chapter 11 Cases to cases under Chapter 7 of the
Bankruptcy Code under Sections 503(b) and 507(a)(1) of the Bankruptcy Code.
Section 9.4 Extension; Waiver. At any time prior to the Closing, the
Sellers, on the one hand, or the Buyers, on the other hand, may (a) extend the
time for the performance of any of the obligations or acts of the other party,
(b) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered pursuant hereto, (c) waive
compliance with any of the agreements of the other party contained herein or (d)
waive any condition to its obligations hereunder. Any agreement on the part of
the Sellers, on the one hand, or the Buyers, on the other hand, to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of the Sellers or the Buyers, as applicable.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of Insilco and the Buyers;
provided that the consent of the Prepetition Agent shall be required in
connection with any amendment of this Agreement that materially modifies this
Agreement.
Section 10.2 Waiver of Compliance; Consents. Except as otherwise
provided in this Agreement, any failure of any of the parties to comply with any
obligation, covenant or condition herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, or condition shall not operate as a waiver of, or
estoppel with respect to any subsequent or other failure.
Section 10.3 Survival. The parties hereto agree that the
representations and warranties contained in this Agreement shall not survive the
Closing hereunder, and neither party nor any of their respective officers,
directors, representatives, employees, advisors or agents shall have any
liability to the other after the Closing for any breach thereof. The parties
hereto agree that only the covenants contained in this Agreement to be performed
at or after the Closing Date shall survive the Closing hereunder, and each party
hereto shall be liable to the other after the Closing Date for any breach
thereof.
Section 10.4 No Impediment to Liquidation. Nothing herein shall be
deemed or construed as to limit, restrict or impose any impediment to the
Sellers' right to liquidate, dissolve and wind-up their affairs and to cease all
business activities and operations at such time as it may determine following
the Closing. Subject to Section 7.7, the Sellers shall not be obligated to
lxvi
retain assets or employees or to continue operations following the Closing (or
to retain outsource assistance) in order to satisfy their obligations hereunder.
Section 10.5 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (a) when personally
sent/delivered, by facsimile transmission (with hard copy to follow) or sent by
reputable express courier or (b) five (5) days following mailing by registered
or certified mail postage prepaid and return receipt requested. Unless another
address is specified in writing, notices, demands and communications to the
Sellers and the Buyers shall be sent to the addresses indicated below:
(i) If to the Sellers, to:
Insilco Technologies, Inc.
425 Metro Place North, Fifth Floor
Dublin, Ohio 43017
Facsimile: (614) 791-3195
Attention: David A. Kauer
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Facsimile: (212) 848-7179
Attention: Constance A. Fratianni, Esq.
Kenneth A. Gerasimovich, Esq.
(ii) if to any of the Buyers, to:
Bel Fuse Inc.
206 Van Vorst Street
Jersey City, New Jersey 07306
Facsimile: 201-432-9542
Attention: Daniel Bernstein and Colin Dunn
with a copy (which shall not constitute notice)to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
Facsimile: 973-597-2351
Attention: Peter H. Ehrenberg, Esq.
Section 10.6 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns and with respect to the
Sellers, any entity that may succeed to substantially all the assets of the
Sellers, but neither this Agreement nor any of the rights, interests or
obligations
l67
hereunder shall be assigned by any parties hereto, including by operation of
law, without the prior written consent of the other party. Any assignment of
this Agreement or any of the rights, interests or obligations hereunder in
contravention of this Section 10.6 shall be null and void and shall not bind or
be recognized by the Sellers or the Buyers.
Section 10.7 Third-Party Beneficiaries. Nothing in this Agreement shall
be construed as giving any person other than the parties hereto and the
Prepetition Agent any legal or equitable right, remedy or claim under or with
respect to this Agreement.
Section 10.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect for so long as the economic or
legal substance of the transactions contemplated by this Agreement is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated by
this Agreement are consummated as originally contemplated to the greatest extent
possible.
Section 10.9 Governing Law. This Agreement shall be governed by the
laws of the State of New York excluding (to the greatest extent a New York court
would permit) any rule of law that would cause the application of the laws of
any jurisdiction other than the State of New York.
Section 10.10 Submission to Jurisdiction. (a) The parties hereto
irrevocably submit to the exclusive jurisdiction of the Bankruptcy Court (or any
court exercising appellate jurisdiction over the Bankruptcy Court) over any
dispute arising out of or relating to this Agreement or any other agreement or
instrument contemplated hereby or entered into in connection herewith or any of
the transactions contemplated hereby or thereby. Each party hereby irrevocably
agrees that all claims in respect of such dispute or proceedings may be heard
and determined in such courts. The parties hereby irrevocably waive, to the
fullest extent permitted by applicable law, any objection which they may now or
hereafter have to the laying of venue of any such dispute or proceeding brought
in such court or any defense of inconvenient forum in connection therewith.
(b) Service of process in connection with any such suit, action
or proceeding may be served on each party hereto anywhere in the world by the
same methods as are specified for the giving of notices under Section 10.5 of
this Agreement.
(c) Bel Fuse Ltd. and Bel Fuse Macau, L.D.A. hereby irrevocably
appoint Bel Connector Inc. and Bel Transformer Inc. as agents thereof for the
service of process thereon, and service of process on Bel Connector Inc. and Bel
Transformer Inc. shall be deemed to be valid service of process on Bel Fuse Ltd.
and Bel Fuse Macau, L.D.A.
Section 10.11 Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which, when
executed and delivered, shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
lxviii
Section 10.12 Incorporation of Exhibits. The Disclosure Schedule and
all Exhibits attached hereto and referred to herein are hereby incorporated
herein by reference and made a part of this Agreement for all purposes as if
fully set forth herein.
Section 10.13 Entire Agreement. This Agreement (including the Exhibits
and the Disclosure Schedule), the Ancillary Agreements and the Confidentiality
Agreement constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto.
Section 10.14 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
Section 10.15 Remedies. Subject to Section 10.3, the Sellers and the
Buyers hereby acknowledge and agree that money damages may not be an adequate
remedy for any breach or threatened breach of any of the provisions of this
Agreement and that, in such event, the Sellers or their successors or assigns,
or the Buyers or their successors or assigns, as the case may be, may, in
addition to any other rights and remedies existing in their favor, apply to the
Bankruptcy Court or any other court of competent jurisdiction for specific
performance, and injunctive and/or other relief in order to enforce or prevent
any violations of this Agreement.
Section 10.16 Bulk Sales or Transfer Laws. The Buyers hereby waive
compliance by the Seller Parties with the provisions of the bulk sales or
transfer laws of all applicable jurisdictions.
Section 10.17 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT THEY MAY HAVE TO A
TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT. THE PARTIES HERETO (a) CERTIFY THAT NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THAT
FOREGOING WAIVER AND (b) ACKNOWLEDGES THAT THEY AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.17.
* * * * *
lxix
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written by their respective officers
thereunto duly authorized.
THE SELLERS: INSILCO TECHNOLOGIES, INC.
By: /s/ David A. Kauer
-----------------------------------------
Name: David A. Kauer
Title: President and Chief Executive
Officer
STEWART CONNECTOR SYSTEMS, INC.
By: /s/ Michael R. Elia
-----------------------------------------
Name: Michael R. Elia
Title: Senior Vice President and Chief
Financial Officer
INNET TECHNOLOGIES, INC.
By: /s/ Michael R. Elia
-----------------------------------------
Name: Michael R. Elia
Title: Senior Vice President and Chief
Financial Officer
INSILCO INTERNATIONAL HOLDINGS, INC.
By: /s/ David A. Kauer
-----------------------------------------
Name: David A. Kauer
Title: President and Chief Executive
Officer
SIGNAL CARIBE, INC.
By: /s/ David A. Kauer
-----------------------------------------
Name: David A. Kauer
Title: President and Chief Executive
Officer
EYELETS FOR INDUSTRY, INC.
By: /s/ David A. Kauer
-----------------------------------------
Name: David A. Kauer
Title: President and Chief Executive
Officer
lxx
STEWART STAMPING CORP.
By: /s/ David A. Kauer
-----------------------------------------
Name: David A. Kauer
Title: President and Chief Executive
Officer
SIGNAL TRANSFORMER CO., INC.
By: /s/ Michael R. Elia
-----------------------------------------
Name: Michael R. Elia
Title: Senior Vice President and Chief
Financial Officer
THE BUYERS: BEL FUSE, LTD.
By: /s/ Daniel Bernstein
-----------------------------------------
Name: Daniel Bernstein
Title: Director
BEL FUSE MACAU, L.D.A.
By: /s/ Daniel Bernstein
-----------------------------------------
Name: Daniel Bernstein
Title: Director
BEL CONNECTOR INC.
By: /s/ Colin Dunn
--------------------------------
Name: Colin Dunn
Title: Vice President & Secretary
BEL TRANSFORMER INC.
By: /s/ Colin Dunn
-----------------------------------------
Name: Colin Dunn
Title: Vice President & Secretary
lxxi
AMENDMENT NO. 1 TO THE
STOCK AND ASSET PURCHASE AGREEMENT
Dated as of March 21, 2003
THIS AMENDMENT (this "Amendment") is entered into by and among
Insilco Technologies, Inc., a Delaware corporation, Stewart Connector Systems,
Inc., a Pennsylvania corporation, InNet Technologies, Inc., a California
corporation, Insilco International Holdings, Inc., a Delaware corporation,
Signal Caribe, Inc., a Delaware corporation, Eyelets for Industry, Inc., a
Connecticut corporation, Stewart Stamping Corp., a Delaware corporation, and
Signal Transformer Co., Inc., a Delaware corporation, (collectively, the
"Sellers"), Bel Fuse Inc., a New Jersey corporation, Bel Fuse Ltd., a Hong Kong
corporation, Bel Fuse Macau, L.D.A., a Macau corporation, Bel Connector Inc., a
Delaware corporation, and Bel Transformer Inc., a Delaware corporation,
(collectively, the "Buyers").
WHEREAS, the Buyers (with the exception of Bel Fuse Inc.) and
the Sellers have entered into a Stock and Asset Purchase Agreement dated as of
December 15, 2002 (the "Agreement"), the terms defined therein being used herein
as therein defined unless otherwise defined herein;
WHEREAS, Section 5.4(a) of the Agreement provides certain
information regarding the capitalization of Insilco Technologies Germany that is
inaccurate, and the Sellers and the Buyers wish to amend the Agreement to
correct such inaccurate information.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements and covenants set forth herein, the parties hereto agree as
follows:
SECTION 1. Amendment to the Agreement. The Agreement is hereby
amended in accordance with Section 10.1 of the Agreement as follows:
(a) The terms "Buyer" and "Buyers" are hereby amended to
include Bel Fuse Inc., a New Jersey corporation.
(b) In the first WHEREAS clause of the Agreement, the word
"Limited" is hereby inserted after the words "Insilco Technologies
International".
(c) In Section 5.4(a) of the Agreement, the first sentence is
hereby replaced in its entirety as follows:
"The authorized nominal capital of Insilco Technologies
Germany consists of the following: one (1) share of nominal capital at nominal
value of 60,000 Euro (the "Insilco Technologies Germany Shares")."
(d) In Section 5.4(a) of the Agreement, the fifth sentence is
hereby replaced in its entirety as follows:
"The Insilco Technologies Germany Shares constitute all of the
issued and outstanding capital stock of Insilco Technologies Germany and are
owned of record and beneficially by Insilco free and clear of all Encumbrances,
except as set forth in Schedule 5.4(a) of the Disclosure Schedule."
(e) In Section 5.4(b) of the Agreement, the fifth sentence is
hereby replaced in its entirety as follows:
"The Top East Shares constitute all the issued and outstanding
capital stock of Top East and are owned of record and beneficially by ITI free
and clear of all Encumbrances, except as set forth in Schedule 5.4(b) of the
Disclosure Schedule."
(f) In Section 5.4(g) of the Agreement, the fifth sentence is
hereby replaced in its entirety as follows:
"The Signal Transformer Mexico Shares constitute all the
issued and outstanding capital stock of Signal Transformer Mexico and are owned
of record and beneficially by Insilco International Holdings, Inc. in the amount
of 500 of the Signal Transformer Mexico Shares and by Signal Transformer Co.,
Inc. in the amount of 49,500 of the Signal Transformer Mexico Shares free and
clear of all Encumbrances, except as set forth in Schedule 5.4(g) of the
Disclosure Schedule."
SECTION 2. Effect on Agreement. By execution of this
Amendment, Bel Fuse Inc. agrees to be deemed to be a party to, and shall be
fully bound by, the terms and conditions of the Agreement. In addition, except
as specifically amended above, the Agreement shall continue to be in full force
and effect and is hereby ratified and confirmed.
SECTION 3. Execution in Counterparts. This Amendment may be
executed and delivered (including by facsimile transmission) in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original but all
of which taken together shall constitute but one and the same instrument.
SECTION 4. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
[The remainder of this page is left blank intentionally.]
2
IN WITNESS WHEREOF, the Buyers and the Sellers have caused
this Amendment to be executed as of the date first written above.
THE SELLERS: INSILCO TECHNOLOGIES, INC.
By: /s/ David A. Kauer
----------------------------------------
Name: David A. Kauer
Title: President and Chief Executive
Officer
STEWART CONNECTOR SYSTEMS, INC.
By: /s/ Michael R. Elia
----------------------------------------
Name: Michael R. Elia
Title: Senior Vice President and Chief
Financial Officer
INNET TECHNOLOGIES, INC.
By: /s/ Michael R. Elia
----------------------------------------
Name: Michael R. Elia
Title: Senior Vice President and Chief
Financial Officer
INSILCO INTERNATIONAL HOLDINGS, INC.
By: /s/ David A. Kauer
----------------------------------------
Name: David A. Kauer
Title: President and Chief Executive
Officer
SIGNAL CARIBE, INC.
By: /s/ David A. Kauer
----------------------------------------
Name: David A. Kauer
Title: President and Chief Executive
Officer
EYELETS FOR INDUSTRY, INC.
By: /s/ David A. Kauer
----------------------------------------
Name: David A. Kauer
Title: President and Chief Executive
Officer
STEWART STAMPING CORP.
By: /s/ David A. Kauer
----------------------------------------
Name: David A. Kauer
Title: President and Chief Executive
Officer
SIGNAL TRANSFORMER CO., INC.
By: /s/ Michael R. Elia
----------------------------------------
Name: Michael R. Elia
Title: Senior Vice President and Chief
Financial Officer
THE BUYERS: BEL FUSE INC.
By: /s/ Daniel Bernstein
----------------------------------------
Name: Daniel Bernstein
Title: President
BEL FUSE LTD.
By: /s/ Daniel Bernstein
----------------------------------------
Name: Daniel Bernstein
Title: Director
BEL FUSE MACAU, L.D.A.
By: /s/ Daniel Bernstein
----------------------------------------
Name: Daniel Bernstein
Title: Director
BEL CONNECTOR INC.
By: /s/ Colin Dunn
----------------------------------------
Name: Colin Dunn
Title: Vice President & Secretary
BEL TRANSFORMER INC.
By: /s/ Colin Dunn
----------------------------------------
Name: Colin Dunn
Title: Vice President & Secretary
EXHIBIT 10.71
AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT
DATED AS OF MARCH 21, 2003
BY AND AMONG
BEL FUSE INC.,
AS BORROWER
THE SUBSIDIARY GUARANTORS PARTY HERETO
AND
THE BANK OF NEW YORK,
AS LENDER
BRYAN CAVE LLP
245 PARK AVENUE
NEW YORK, NEW YORK 10167
TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS AND RULES OF INTERPRETATION........................................................1
SECTION 1.1. DEFINITIONS..............................................................................1
-----------
SECTION 1.2. ACCOUNTING TERMS........................................................................19
----------------
SECTION 1.3. RULES OF INTERPRETATION.................................................................19
-----------------------
SECTION 1.4. CLASSIFICATION OF LOANS AND ADVANCES....................................................19
------------------------------------
ARTICLE 2. AMOUNT AND TERMS OF THE LOANS.................................................................20
SECTION 2.1. LOANS...................................................................................20
-----
SECTION 2.2. PROCEDURE FOR BORROWING.................................................................20
-----------------------
SECTION 2.3. TERMINATION AND REDUCTION OF REVOLVING COMMITMENT.......................................21
-------------------------------------------------
SECTION 2.4. PREPAYMENTS OF THE LOANS................................................................21
------------------------
SECTION 2.5. PAYMENTS; SET-OFF.......................................................................22
-----------------
ARTICLE 3. INTEREST, FEES, YIELD PROTECTIONS, ETC........................................................23
SECTION 3.1. INTEREST RATE AND PAYMENT DATES.........................................................23
-------------------------------
SECTION 3.2. FEES....................................................................................24
----
SECTION 3.3. CONVERSIONS.............................................................................25
-----------
SECTION 3.4. CONCERNING INTEREST PERIODS.............................................................25
---------------------------
SECTION 3.5. FUNDING LOSS............................................................................26
------------
SECTION 3.6. INCREASED COSTS; ILLEGALITY, ETC........................................................26
---------------------------------
SECTION 3.7. TAXES...................................................................................28
-----
SECTION 3.8. CHANGES OF LENDING OFFICES..............................................................29
--------------------------
ARTICLE 4. REPRESENTATIONS AND WARRANTIES................................................................29
SECTION 4.1. ORGANIZATION AND POWER..................................................................29
----------------------
SECTION 4.2. AUTHORIZATION; ENFORCEABILITY...........................................................30
-----------------------------
SECTION 4.3. GOVERNMENTAL APPROVALS; NO CONFLICTS....................................................30
------------------------------------
SECTION 4.4. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.........................................30
-----------------------------------------------
SECTION 4.5. PROPERTIES..............................................................................31
----------
SECTION 4.6. LITIGATION..............................................................................31
----------
SECTION 4.7. ENVIRONMENTAL MATTERS...................................................................31
---------------------
SECTION 4.8. COMPLIANCE WITH LAWS AND AGREEMENTS; NO DEFAULT.........................................32
-----------------------------------------------
SECTION 4.9. INVESTMENT COMPANIES AND OTHER REGULATED ENTITIES.......................................32
-------------------------------------------------
SECTION 4.10. FEDERAL RESERVE REGULATIONS............................................................33
---------------------------
SECTION 4.11. ERISA..................................................................................33
-----
SECTION 4.12. TAXES..................................................................................33
-----
SECTION 4.13. SUBSIDIARIES...........................................................................33
------------
SECTION 4.14. ABSENCE OF CERTAIN RESTRICTIONS........................................................34
-------------------------------
SECTION 4.15. LABOR RELATIONS........................................................................34
---------------
SECTION 4.16. INSURANCE..............................................................................34
---------
SECTION 4.17. FINANCIAL CONDITION....................................................................34
-------------------
SECTION 4.18. SECURITY DOCUMENTS.....................................................................34
------------------
SECTION 4.19. NO MISREPRESENTATION...................................................................35
--------------------
ARTICLE 5. CONDITIONS....................................................................................35
SECTION 5.1. RESTATEMENT DATE........................................................................35
----------------
SECTION 5.2. EACH BORROWING..........................................................................38
--------------
ARTICLE 6. AFFIRMATIVE COVENANTS.........................................................................38
SECTION 6.1. FINANCIAL STATEMENTS AND INFORMATION....................................................39
------------------------------------
PAGE
----
SECTION 6.2. NOTICE OF MATERIAL EVENTS...............................................................40
-------------------------
SECTION 6.3. EXISTENCE; CONDUCT OF BUSINESS..........................................................41
------------------------------
SECTION 6.4. PAYMENT OF OBLIGATIONS..................................................................41
----------------------
SECTION 6.5. MAINTENANCE OF PROPERTIES...............................................................41
-------------------------
SECTION 6.6. INSURANCE...............................................................................41
---------
SECTION 6.7. BOOKS AND RECORDS: INSPECTION RIGHTS....................................................42
------------------------------------
SECTION 6.8. COMPLIANCE WITH LAWS....................................................................42
--------------------
SECTION 6.9. ADDITIONAL SUBSIDIARIES.................................................................42
-----------------------
SECTION 6.10. ADDITIONAL COLLATERAL..................................................................43
---------------------
SECTION 6.11. MAINTENANCE OF LICENSES................................................................43
-----------------------
SECTION 6.12. PLEDGE OF STOCK IN MATERIAL FOREIGN SUBSIDIARIES.......................................43
------------------------------------------------
ARTICLE 7. NEGATIVE COVENANTS............................................................................43
SECTION 7.1. INDEBTEDNESS............................................................................43
------------
SECTION 7.2. NEGATIVE PLEDGE.........................................................................45
---------------
SECTION 7.3. FUNDAMENTAL CHANGES.....................................................................45
-------------------
SECTION 7.4. INVESTMENTS, LOANS, ADVANCES AND GUARANTEES.............................................46
-------------------------------------------
SECTION 7.5. ACQUISITIONS............................................................................47
------------
SECTION 7.6. DISPOSITIONS............................................................................48
------------
SECTION 7.7. RESTRICTED PAYMENTS.....................................................................48
-------------------
SECTION 7.8. HEDGING AGREEMENTS......................................................................49
------------------
SECTION 7.9. SALE AND LEASE-BACK TRANSACTIONS........................................................49
--------------------------------
SECTION 7.10. LINES OF BUSINESS......................................................................49
-----------------
SECTION 7.11. TRANSACTIONS WITH AFFILIATES...........................................................49
----------------------------
SECTION 7.12. USE OF PROCEEDS........................................................................49
---------------
SECTION 7.13. RESTRICTIVE AGREEMENTS.................................................................49
----------------------
SECTION 7.14. FINANCIAL COVENANTS....................................................................50
-------------------
SECTION 7.15. EXCLUDED SUBSIDIARIES..................................................................50
---------------------
ARTICLE 8. DEFAULTS......................................................................................50
SECTION 8.1. EVENTS OF DEFAULT.......................................................................50
-----------------
SECTION 8.2. CONTRACT REMEDIES.......................................................................52
-----------------
ARTICLE 9. OTHER PROVISIONS..............................................................................53
SECTION 9.1. AMENDMENTS AND WAIVERS..................................................................53
----------------------
SECTION 9.2. NOTICES.................................................................................54
-------
SECTION 9.3. SURVIVAL................................................................................54
--------
SECTION 9.4. EXPENSES; INDEMNITY.....................................................................55
-------------------
SECTION 9.5. SUCCESSORS AND ASSIGNS..................................................................55
----------------------
SECTION 9.6. COUNTERPARTS; INTEGRATION...............................................................57
-------------------------
SECTION 9.7. SEVERABILITY............................................................................57
------------
SECTION 9.8. GOVERNING LAW...........................................................................57
-------------
SECTION 9.9. JURISDICTION; SERVICE OF PROCESS........................................................57
--------------------------------
SECTION 9.10. WAIVER OF TRIAL BY JURY................................................................58
-----------------------
SECTION 9.11. SAVINGS CLAUSE.........................................................................58
--------------
ARTICLE 10. SUBSIDIARY GUARANTEE..........................................................................58
SECTION 10.1. GUARANTEE..............................................................................58
---------
SECTION 10.2. ABSOLUTE OBLIGATION....................................................................59
-------------------
SECTION 10.3. REPAYMENT IN BANKRUPTCY, ETC...........................................................60
-----------------------------
SECTION 10.4. ADDITIONAL SUBSIDIARY GUARANTORS.......................................................61
--------------------------------
SECTION 10.5. MISCELLANEOUS..........................................................................61
-------------
(ii)
EXHIBITS:
- ---------
================================================================================
Exhibit A Form of Note
- --------------------------------------------------------------------------------
Exhibit B Form of Borrowing Request
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exhibit C Form of Notice of Conversion
- --------------------------------------------------------------------------------
Exhibit D Form of Compliance Certificate
- --------------------------------------------------------------------------------
Exhibit E Form of Reserved
- --------------------------------------------------------------------------------
Exhibit F Form of Guarantee Supplement
- --------------------------------------------------------------------------------
Exhibit G Form of Security Agreement
================================================================================
SCHEDULES:
================================================================================
Schedule 4.5 Exceptions to Section 4.5 (Properties)
- --------------------------------------------------------------------------------
Schedule 4.6 List of Litigation
- --------------------------------------------------------------------------------
Schedule 4.7 Environmental Matters
- --------------------------------------------------------------------------------
Schedule 4.13 List of Subsidiaries; Capitalization
- --------------------------------------------------------------------------------
Schedule 4.16 List of Insurance
- --------------------------------------------------------------------------------
Schedule 7.1 List of Existing Indebtedness
- --------------------------------------------------------------------------------
Schedule 7.2 List of Existing Liens
- --------------------------------------------------------------------------------
Schedule 7.4 List of Existing Investments
================================================================================
(iii)
AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT, dated as of March
21, 2003, by and among BEL FUSE INC., a New Jersey corporation (the "Borrower"),
the Subsidiary Guarantors (as defined below) and THE BANK OF NEW YORK ("BNY" or
the "Lender").
RECITALS
A. Reference is made to the Credit and Guarantee Agreement, dated as of
May 14, 1999, by and among Bel Fuse Inc., a New Jersey corporation, and The Bank
of New York (the "Original Credit Agreement").
B. Bel Hybrids and Magnetics Inc., formerly a Subsidiary Guarantor, was
dissolved on June 4, 2001.
C. The parties hereto desire to amend the Original Credit Agreement by
amending and restating it in its entirety.
D. For convenience, this Agreement is dated as of March 21, 2003 (the
"Restatement Date"), and references to certain matters relating to the period
prior thereto have been deleted.
NOW, THEREFORE, the parties hereto agree to amend and restate the
Original Credit Agreement in its entirety as follows:
Article 1. DEFINITIONS AND RULES OF INTERPRETATION
---------------------------------------
Section 1.1. Definitions
-----------
As used in this Agreement, terms defined in the preamble have
the meanings therein indicated, and the following terms have the following
meanings:
"ABR Advances" means the Loans (or any portions thereof), at
such time as they (or such portions) are made and/or being maintained at a rate
of interest based upon the Alternate Base Rate.
"Accountants" means Deloitte & Touche LLP (or any successor
thereto), or such other firm of certified public accountants of recognized
national standing selected by the Borrower and reasonably satisfactory to the
Lender.
"Acquisition" has the meaning set forth in Section 7.5.
"Acquisition Consideration" has the meaning set forth in
Section 7.5(c).
"Affiliate" means as to any Person any other Person at the
time directly or indirectly controlling, controlled by or under direct or
indirect common control with such Person. For purposes of this definition,
"control" of a Person means the power, directly or indirectly, either to (i)
vote 5% or more of the securities having ordinary voting power for
the election of directors of such Person or (ii) direct or cause the direction
of the management and policies of such Person, whether by contract or otherwise.
"Agreement" means this Credit and Guarantee Agreement.
"Alternate Base Rate" means on any date, a rate of interest
per annum equal to the higher of (i) the Federal Funds Effective Rate in effect
on such date plus 1/2 of 1% or (ii) the Prime Rate in effect on such date.
"Applicable Margin" means, at all times during the applicable
periods set forth below: (i) with respect to ABR Advances, the percentage set
forth below under the heading "ABR Margin", (ii) with respect to Eurodollar
Advances, the percentage set forth below under the heading "Eurodollar Margin",
and (iii) with respect to the Commitment Fee, the percentage set forth below
under the heading "Commitment Fee".
========================================================================================
WHEN THE LEVERAGE RATIO IS:
- ---------------------------------------------------------------------------------------
GREATER THAN OR AND LESS THAN ABR MARGIN EURODOLLAR MARGIN COMMITMENT FEE
EQUAL TO
- ---------------------------------------------------------------------------------------
1.00:1.00 1.25% 2.50% 0.375%
- ---------------------------------------------------------------------------------------
0.50:1.00 1.00:1.00 0.75% 2.00% 0.300%
- ---------------------------------------------------------------------------------------
0.50:1.00 0.50% 1.50% 0.250%
=======================================================================================
During the period commencing on the Restatement Date and
ending on the date of delivery to the Lender of a Compliance Certificate
pursuant to Section 6.1(c) for the fiscal quarter ending June 30, 2003, the
Leverage Ratio shall be based on the certificate delivered by the Borrower
pursuant to Section 5.1(h)(iii). Thereafter, changes in the Applicable Margin
resulting from a change in the Leverage Ratio shall be based upon the Compliance
Certificate most recently delivered pursuant to Section 6.1(c) and shall become
effective on the date such Compliance Certificate is delivered to the Lender.
Notwithstanding anything to the contrary contained in this definition, if the
Borrower shall fail to deliver to the Lender a Compliance Certificate on or
prior to any date required hereby, the Leverage Ratio shall be deemed to be
greater than 1.00:1.00 from and including such date to the date of delivery to
the Lender of such Compliance Certificate.
"Approval Order" means the Order of the Bankruptcy Court (i)
Authorizing the Sale of Certain Assets Related to Debtors' Passive Components
Business Free and Clear of Liens, Claims, Encumbrances and Interests, (ii)
Authorizing Assumption and Assignment of Certain Executory Contracts and
Unexpired Leases and (iii) Granting Related Relief entered in the Bankruptcy
Proceeding.
"Bankruptcy Court" means the United States Bankruptcy Court
for the District of Delaware.
2
"Bankruptcy Proceeding" means the Chapter 11 proceeding
entitled In re Insilco Technologies, Inc., et al. (Case No. 02-13672) pending on
the Restatement Date in the Bankruptcy Court.
"Board of Governors" means the Board of Governors of the
Federal Reserve System of the United
States.
"Borrower Obligations" means, collectively, all of the
obligations and liabilities of the Borrower under the Loan Documents, and all
other Indebtedness of the Borrower to the Lender, in each case whether fixed,
contingent, now existing or hereafter arising, created, assumed, incurred or
acquired, and whether arising before or after the occurrence of any Event of
Default under Sections 8.1(h) or (i) and including any obligation or liability
in respect of any breach of any representation or warranty and all post-petition
interest and funding losses, whether or not allowed as a claim in any proceeding
arising in connection with such an event.
"Borrowing Date" means any Business Day on which the Lender
makes Loans.
"Borrowing Request" means a request by the Borrower for a Loan
in accordance with Section 2.2 and substantially in the form of Exhibit B.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which commercial banks located in New York City are authorized or
required by law or other governmental action to be closed, provided that when
used in connection with a Eurodollar Advance, the term shall also exclude any
day on which banks are not open for dealings in dollar deposits in the London
interbank market.
"Capital Lease Obligations" means, with respect to any
Person, the obligations of such Person to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, (a) which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such Person
under GAAP, and the amount of such obligations shall be the capitalized amount
thereof determined in accordance with GAAP, or (b) which lease does not qualify
as a Tax Operating Lease. For purposes of this definition, "Tax Operating Lease"
means any "synthetic lease", and any other lease (i) that is treated as a lease
for purposes of the Code, and (ii) the lessor under which is treated as the
owner of the assets subject to the lease for purposes of the Code.
"Capital Stock" means, as to any Person, all shares,
interests, partnership interests, limited liability company interests,
participations, rights in or other equivalents (however designated) of such
Person's equity (however designated) and any rights, warrants or options
exchangeable for or convertible into such shares, interests, participations,
rights or other equity.
"Cash Equivalents" means Dollar denominated investments in
(i) securities issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof (provided that the full faith
and credit of the United
3
States is pledged in full support thereof) having maturities of not more than
one year from the date of acquisition, (ii) time deposits, certificates of
deposit and bankers acceptances maturing within 270 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money market
deposit accounts issued or offered by, any domestic office of any commercial
bank having a combined capital surplus and undivided profits of not less than
$100,000,000 and whose (or whose parent company's) unsecured non-credit
supported short-term debt or commercial paper rating at the time of such
acquisition (x) from Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto ("S&P") is at least A-1,
or the equivalent thereof, or (y) from Moody's Investors Service, Inc. or any
successor thereto ("Moody's") is at least P-1, or the equivalent thereof, (iii)
commercial paper maturing within 90 days from the date of acquisition thereof
and having, at such date of acquisition, a rating (x) from S&P of at least A-1,
or the equivalent thereof, or (y) from Moody's of at least P-1, or the
equivalent thereof, (iv) marketable direct obligations issued by any state of
the United States 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 S&P or Moody's, (v) normal business banking accounts, and
(vi) investments in money market funds substantially all the assets of which are
comprised of securities of the types described in clauses (i) through (iv)
above.
"Change in Law" means (i) the adoption of any law, rule or
regulation after the Restatement Date, (ii) the issuance or promulgation after
the Restatement Date of any directive, guideline or request from any
Governmental Authority (whether or not having the force of law), or (iii) any
change after the Restatement Date in the interpretation of any existing law,
rule, regulation, directive, guideline or request by any Governmental Authority
charged with the administration thereof.
"Change of Control" means the occurrence of any of the
following events:
(a) any person or group (other than any one or more
permitted investors) shall
have become the beneficial owner of voting shares entitled to exercise more than
20% of the total voting power of all outstanding voting shares of the Borrower
(including any voting shares which are not then outstanding of which such person
or group is deemed the beneficial owner);
(b) a change in the composition of the Managing
Person of the Borrower shall have
occurred in which the individuals who constituted the Managing Person of the
Borrower at the beginning of the two year period immediately preceding such
change (together with any other director whose election by the Managing Person
of the Borrower or whose nomination for election by the shareholders of the
Borrower was approved by a vote of at least a majority of the members of such
Managing Person then in office who either were members of such Managing Person
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
members of such Managing Person then in office; or
4
(c) any similar circumstance which, under the
documentation evidencing or
governing any Indebtedness of the Borrower of $5,000,000 or more, results in the
Borrower being required to prepay, purchase, offer to purchase, redeem or
defease such Indebtedness.
For purposes of this definition, (i) the terms "person" and
"group" shall have the respective meanings ascribed thereto in Sections 13(d)
and 14(d)(2) of the Exchange Act, (ii) the term "beneficial owner" has the
meaning ascribed thereto in Rule 13d-3 under the Exchange Act, except that a
Person shall not be deemed to be the "beneficial owner" of a security as a
result of such Person's right to acquire such security within a specified time
period if such right is conditioned, in whole or in part, upon events other than
the passage of time, and such events have not occurred, (iii) the term
"permitted investors" shall mean Elliot Bernstein, any of his immediate family
members and any of his heirs or beneficiaries, and (iv) the term "voting shares"
shall mean all outstanding shares of any class or classes (however designated)
of Capital Stock of the Borrower entitled to vote generally in the election of
members of the Managing Person thereof.
"Class", when used in reference to any Loan or Advance, refers
to whether such Loan, or the Loans comprising such Advance, are Revolving Loans
or all or a portion of the Term Loan, as applicable.
"Code" means the Internal Revenue Code of 1986, as the same
may be amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"Collateral" means any and all "Collateral", as defined in any
Security Document.
"Commitments" means, collectively, the Revolving Commitment
and the Term Commitment.
"Commitment Fee" has the meaning set forth in Section 3.2(a).
"Compliance Certificate" has the meaning set forth in Section
6.1(c).
"Consolidated EBITDA" means, for any period, net income of the
Borrower and the Subsidiaries, determined on a consolidated basis in accordance
with GAAP for such period plus (i) the sum of, without duplication, each of the
following with respect to the Borrower and the Subsidiaries on a consolidated
basis in accordance with GAAP, each to the extent utilized in determining net
income for such period (a) interest expense, (b) provision for income taxes, (c)
depreciation, amortization and other non-cash charges, and (d) extraordinary
losses from sales, exchanges and other dispositions of property not in the
ordinary course of business, minus (ii) the sum of, without duplication, each of
the following with respect to the Borrower and the Subsidiaries on a
consolidated basis in accordance with GAAP, each to the extent utilized in
determining net income for such period: (a) extraordinary gains from sales,
exchanges
5
and other dispositions of property not in the ordinary course of business, and
(b) other non-recurring items (other than expenses and losses).
"Consolidated Fixed Charges" means, for any period, the sum of
each of the following with respect to the Borrower and the Subsidiaries,
determined on a consolidated basis in accordance with GAAP: (i) interest expense
for such period, (ii) the aggregate amount of all Capital Expenditures made
during such period, (iii) without duplication, current maturities of long-term
Indebtedness plus scheduled payments made during such period on account of the
principal of Indebtedness of the Borrower or any of its Subsidiaries (including
scheduled principal payments in respect of the Term Loan) and (iv) the aggregate
amount of all cash income taxes paid during such period.
"Consolidated Tangible Net Worth" means, at any date of
determination, the sum of all amounts which would be included under
"stockholders' equity" or any analogous entry on a consolidated balance sheet of
the Borrower and the Subsidiaries determined in accordance with GAAP as of such
date minus the sum of all intangible assets of the Borrower and the Subsidiaries
which would be included under "assets" or any analogous entry on such balance
sheet, including unamortized debt discount and expense, unamortized deferred
charges (including new business acquisition costs and other charges), goodwill,
patents, trademarks, service marks, trade names, copyrights, consignment
inventory rights, organization or developmental expenses, capitalized software
development costs, and net deferred taxes (if positive), determined in
accordance with GAAP as of such date.
"Consolidated Total Liabilities" means, at any date of
determination, the sum of all amounts which would be included as a liability on
a consolidated balance sheet of the Borrower and the Subsidiaries determined in
accordance with GAAP on such date.
"Conversion Date" means the date on which (i) a Eurodollar
Advance is converted to an ABR Advance, (ii) an ABR Advance is converted to a
Eurodollar Advance or (iii) a Eurodollar Advance is converted to, or continued
as, a new Eurodollar Advance.
"Customary Lien" means any of the following: (i) any Lien
imposed by law for Taxes that are not yet due or are being contested in
compliance with Section 6.4, provided that enforcement of such Lien is stayed
pending such contest; (ii) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the ordinary course
of business and securing obligations that are not overdue by more than 30 days
or are being contested in compliance with Section 6.4, provided that enforcement
of each such Lien is stayed pending such contest; (iii) pledges and deposits
made in the ordinary course of business in compliance with workers'
compensation, unemployment insurance and other social security laws or
regulations; (iv) deposits and pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of like
nature arising in the ordinary course of business; (v) judgment liens in respect
of judgments that would not cause an Event of Default under Section 8.1(j); (vi)
zoning ordinances, easements, rights of way, minor defects,
6
irregularities, and other similar encumbrances on real property imposed by law
or arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property or interfere with the ordinary conduct of business of the Borrower or
any Subsidiary; and (vii) Liens created under the Loan Documents.
"Default" means any event or condition which constitutes an
Event of Default or which, with the giving of notice, the lapse of time, or the
occurrence of any other condition, would, unless cured or waived, become an
Event of Default.
"Disqualified Stock" means any Capital Stock of any Person
that, by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable at the option of the holder thereof), or upon
the happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, provided, however, that any Capital Stock
that would constitute Disqualified Stock solely because the holders thereof have
the right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of certain events shall not constitute Disqualified Stock if the
terms of such Capital Stock provide that the Borrower may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with Section 7.7 of this Agreement.
"Dollars" and "$" mean lawful currency of the United States.
"Domestic Subsidiary" means any Subsidiary that is not a
Foreign Subsidiary.
"Environmental Laws" has the meaning set forth in Section 4.7.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations issued
thereunder, as from time to time in effect.
"ERISA Affiliate" means any Person which is a member of any
group of organizations within the meaning of Sections 414(b) or (c) of the Code
(or, solely for purposes of potential liability under Section 302(c)(11) of
ERISA and Section 412(c)(11) of the Code and the lien created under Section
302(f) of ERISA and Section 412(n) of the Code, within the meanings of Sections
414(m) or (o) of the Code) of which the Borrower or any Subsidiary is a member.
"ERISA Event" means (i) a "reportable event", as defined in
Section 4043 of ERISA with respect to a Pension Plan (other than an event for
which the 30-day notice period is waived), (ii) the existence with respect to
any Pension Plan of an "accumulated funding deficiency" (as defined in Section
412 of the Code or Section 302 of ERISA), whether or not waived; (iii) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Pension Plan; (iv) the incurrence by the Borrower or any of its ERISA Affiliates
of any liability under Title IV of ERISA with respect to the
7
termination of any Pension Plan; (v) the receipt by the Borrower or any ERISA
Affiliate from the PBGC or a plan administrator of any notice relating to an
intention to terminate any Pension Plan or Pension Plans or to appoint a trustee
to administer any Pension Plan; (vi) the incurrence by the Borrower or any of
its ERISA Affiliates of any liability with respect to the withdrawal or partial
withdrawal from any Pension Plan or Multiemployer Plan; or (vii) the receipt by
the Borrower or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Eurodollar Advances" means the Loans (or any portions
thereof), at such time as it (or such portions) are made and/or being maintained
at a rate of interest based upon the Eurodollar Rate.
"Eurodollar Rate" means, with respect to each Eurodollar
Advance, a rate of interest per annum, as determined by the Lender, obtained by
dividing (and then rounding to the nearest 1/16 of 1% or, if there is no nearest
1/16 of 1%, then to the next higher 1/16 of 1%):
(a) the rate of interest per annum as determined by the
Lender, equal to the rate, quoted by BNY to leading banks in the London
interbank eurodollar market as the rate at which BNY is offering dollar deposits
in an amount approximately equal to such Eurodollar Advance and having a period
to maturity approximately equal to the Interest Period applicable to such
Eurodollar Advance at approximately 11:00 a.m., London time, two Business Days
prior to the commencement of such Interest Period, by
(b) a number equal to 1.00 minus the aggregate of the then
stated maximum rates during such Interest Period of all reserve requirements
(including marginal, emergency, supplemental and special reserves), expressed as
a decimal, established by the Board of Governors and any other banking authority
to which BNY and other major money center banks chartered under the laws of the
United States or any State thereof are subject, in respect of eurocurrency
funding (currently referred to as "eurocurrency liabilities" in Regulation D)
without benefit of credit for proration, exceptions or offsets which may be
available from time to time to BNY.
"Event of Default" has the meaning set forth in Section 8.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Excluded Subsidiaries" means, collectively, (i) Bel Delaware
LLC, a Delaware limited liability company and a Wholly Owned Subsidiary of the
Hong Kong Subsidiary, (ii) Bel Magnetics Ltd., a Texas limited partnership,
(iii) Bel Fuse Delaware Inc., a Delaware corporation, a Wholly Owned Subsidiary
of the Borrower and the sole general partner of Bel Magnetics Ltd., (iv) Bel
Fuse California Inc., a California corporation, a Wholly Owned Subsidiary of the
Borrower and the sole limited partner of
8
Bel Magnetics Ltd., (v) Bel Fuse America Inc., a Delaware corporation and a
Wholly Owned Subsidiary of the Borrower and (vi) each of Transformer One LLC,
Transformer Two LLC, Transformer Three LLC, Transformer Four LLC, Transformer
Five LLC and Transformer Six LLC (each, a "Transformer Entity"), each a Delaware
limited liability company and a Wholly Owned Subsidiary formed for the sole
purpose of holding one share of Capital Stock in a Subsidiary organized under
the laws of the Dominican Republic (a "Dominican Subsidiary") in order to comply
with the laws of the Dominican Republic, which Dominican Subsidiary is not a
Material Foreign Subsidiary, provided, however, that (x) if such Transformer
Entity engages in the active conduct of a trade or business, (y) such
Transformer Entity holds or acquires any asset other than one share of the
Capital Stock of such Dominican Subsidiary (other than an asset incidental to
the holding of such share) or (z) the Dominican Subsidiary in which it holds
Capital Stock becomes a Material Foreign Subsidiary, such Transformer Entity
shall automatically cease to be an Excluded Subsidiary.
"Excluded Tax" means as to any Person, a Tax imposed by one of
the following jurisdictions or by any political subdivision or taxing authority
thereof: (i) the United States, (ii) the jurisdiction in which such Person is
organized, (iii) the jurisdiction in which such Person's principal office is
located, (iv) in the case of the Lender, any jurisdiction in which the Lender is
or is deemed to be doing business; which Tax (a) is any income tax or franchise
tax imposed on all or part of the net income or net profits of such Person or
(b) represents interest, fees or penalties for payment of any such income tax or
franchise tax.
"Federal Funds Effective Rate" means, for any day, a rate per
annum (expressed as a decimal, rounded upwards, if necessary, to the next higher
1/100 of 1%) equal to the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
federal funds brokers on such day, as published by the Federal Reserve Bank of
New York on the Business Day next succeeding such day, provided that (i) if the
day for which such rate is to be determined is not a Business Day, the Federal
Funds Effective Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (ii) if such rate is not so published for any day, the Federal Funds
Effective Rate for such day shall be the average of the quotations for such day
on such transactions received by BNY.
"Fees" has the meaning set forth in Section 2.5(a).
"Final Order" means, with respect to the Approval Order, that
such Approval Order has been entered on the docket of the Bankruptcy Court, has
not been reversed, stayed, enjoined, annulled or suspended and the time for
filing an appeal, petition for certiorari or other request for administrative or
judicial relief has expired and as to which no appeal, petition for certiorari
or other formal request for administrative or judicial relief has been timely
filed and is pending or, if an appeal, petition for certiorari or other request
for administrative or judicial relief has been timely filed or taken, the order
or judgment of such court, administrative agency or other tribunal has been
affirmed (or such appeal, petition or other request for administrative or
judicial relief has
9
been dismissed as moot) by the highest court (or other tribunal having appellate
jurisdiction over the order or judgment) to which the order was appealed or the
petition for certiorari has been denied and the time to take any further appeal
or to seek further certiorari or judicial or administrative review has expired.
"Financial Officer" means, as to any Person, the chief
financial officer of such Person or such other officer as shall be satisfactory
to the Lender.
"Fixed Charge Ratio" means, (i) on the Restatement Date, the
ratio of (x) Consolidated EBITDA to (y) Consolidated Fixed Charges, in each case
for the Four Quarter Trailing Period, (ii) as of the last day of the first
fiscal quarter ending after the Restatement Date, the ratio of (x) Consolidated
EBITDA to (y) Consolidated Fixed Charges, in each case for fiscal quarter then
ended, (iii) as of the last day of the second fiscal quarter ending after the
Restatement Date, the ratio of (x) Consolidated EBITDA to (y) Consolidated Fixed
Charges, in each case for two fiscal quarters then ended, (iv) as of the last
day of the third fiscal quarter ending after the Restatement Date, the ratio of
(x) Consolidated EBITDA to (y) Consolidated Fixed Charges, in each case for
three fiscal quarters then ended, and (v) as of the last day of the fourth
fiscal quarter ending after the Restatement Date and the last day of each fiscal
quarter thereafter, the ratio of (x) Consolidated EBITDA to (y) Consolidated
Fixed Charges, in each case for the Four Quarter Trailing Period.
"Foreign Pledge Agreements" means, collectively, each pledge
agreement executed and delivered to grant a security interest in the Capital
Stock of a Material Foreign Subsidiary, each in form and substance satisfactory
to the Lender, provided that in no event shall any such grant create a security
interest in any of the outstanding Capital Stock of a Material Foreign
Subsidiary in excess of 65% of the voting power of all classes of Capital Stock
of such corporation entitled to vote.
"Foreign Subsidiary" means any Subsidiary that is a
"controlled foreign corporation" within the meaning of Section 957 of the Code.
"Four Quarter Trailing Period" means, at any date of
determination, the period of the four fiscal quarters ending on such date, or,
if such date is not the last day of a fiscal quarter, the period of the most
immediately completed four fiscal quarters.
"Fraudulent Transfer Laws" has the meaning set forth in
Section 10.1(b).
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States.
"Governmental Authority" means any foreign, federal, state,
municipal or other government, or any department, commission, board, bureau,
agency, public authority or instrumentality thereof, or any court or arbitrator.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or in effect
guaranteeing any return on any investment made by another Person, or any
Indebtedness, lease, dividend or
10
other obligation (a "primary obligation") of any other Person (a "primary
obligor") in any manner, whether directly or indirectly, including any
obligation of the guarantor, direct or indirect (i) to purchase any primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (A) for the purchase or payment of any primary
obligation or (B) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of a primary obligor,
(iii) to purchase property, securities or services primarily for the purpose of
assuring the beneficiary of any primary obligation of the ability of a primary
obligor to make payment of a primary obligation, (iv) otherwise to assure or
hold harmless the beneficiary of a primary obligation against loss in respect
thereof, and (v) in respect of the liabilities of any partnership in which a
secondary obligor is a general partner, except to the extent that such
liabilities of such partnership are nonrecourse to such secondary obligor and
its separate property, provided, however, that the term "Guarantee" shall not
include the endorsement of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee shall be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Guarantee is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by the guarantor in good
faith.
"Guarantee Supplement" means a Guarantee Supplement in the
form of Exhibit F hereto.
"Guarantor Obligations" means, with respect to each Subsidiary
Guarantor, all of the obligations and liabilities of such Subsidiary Guarantor
under the Loan Documents, whether fixed, contingent, now existing or hereafter
arising, created, assumed, incurred or acquired, and whether arising before or
after the occurrence of any Event of Default under Sections 8.1(h) or (i) and
including any obligation or liability in respect of any breach of any
representation or warranty and all post-petition interest and funding losses,
whether or not allowed as a claim in any proceeding arising in connection with
such an event.
"Hedging Agreement" means any interest rate swap, cap or
collar arrangement or any other derivative product customarily offered by banks
or other financial institutions to their customers in order to manage the
exposure of such customers to interest rate fluctuations.
"Hong Kong Subsidiary" means Bel Fuse, Limited, a Hong Kong
corporation and a direct Wholly Owned Subsidiary of the Borrower.
"Impermissible Qualification" has the meaning set forth in
Section 6.1(a)(i).
"Indebtedness" means, as to any Person, at a particular time,
all items which constitute, without duplication, (i) indebtedness for borrowed
money, (ii) indebtedness in respect of the deferred purchase price of property
(other than trade payables incurred in the ordinary course of business), (iii)
indebtedness evidenced by notes, bonds, debentures or similar instruments, (iv)
obligations with respect to any
11
conditional sale or title retention agreement, (v) indebtedness arising under
acceptance facilities and the amount available to be drawn under all letters of
credit issued for the account of such Person and, without duplication, all
drafts drawn thereunder to the extent such Person shall not have reimbursed the
issuer in respect of the issuer's payment thereof, (vi) liabilities secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien on property owned by such Person (other
than carriers', warehousemen's, mechanics', materialmen's, repairmen's or other
like non-consensual statutory Liens arising in the ordinary course of business),
even though such Person has not assumed or otherwise become liable for the
payment thereof, (vii) Capital Lease Obligations, (viii) all obligations of such
Person in respect of Disqualified Stock, and (ix) all Guarantees by such Person
of Indebtedness of others. The Indebtedness of any Person shall include the
Indebtedness of any other entity (including any partnership in which such Person
is a general partner) to the extent such Person is liable therefor as a result
of such Person's ownership interest in or other relationship with such entity,
except to the extent the terms of such Indebtedness provide that such Person is
not liable therefor.
"Indemnified Liabilities" and "Indemnified Person" have the
meanings set forth in Section 9.4(b).
"Indemnified Tax" means as to any Person, any Tax, except (i)
an Excluded Tax imposed on such Person and (ii) any interest, fees or penalties
for late payment of an Excluded Tax imposed on such Person.
"Insolvent" means, with respect to any Person, (a) the sum of
the assets, at a fair valuation, of such Person does not exceed its debts, (b)
such Person has incurred debts beyond its ability to pay such debts as such
debts mature, (c) such Person believes that, in the ordinary course of its
business during the reasonably foreseeable future, it will incur debts beyond
its ability to pay such debts as such debts mature, and (d) such Person has
insufficient capital with which to conduct its business. For purposes of this
definition only, "debt" means any liability on a claim, and "claim" means any
(i) right to payment, whether such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured, or (ii) right to an equitable remedy
for breach of performance if such breach gives rise to a payment, whether such
right to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, unsecured, liquidated or unliquidated.
"Intellectual Property" means all patents, trademarks,
tradenames, copyrights, trade secrets, confidential or proprietary technical and
business information and other similar property and all licenses related
thereto.
"Intercompany Transaction Amount" has the meaning set forth in
Section 7.1(c)(ii).
"Interest Period" means, with respect to each Eurodollar
Advance, the period commencing on the Borrowing Date or Conversion Date of such
Eurodollar
12
Advance and ending on the numerically corresponding day in the calendar month
that is one, two, three or six months thereafter, as the Borrower may select in
the applicable Borrowing Request or Notice of Conversion.
"Investments" has the meaning set forth in Section in
Section 7.4.
"Leverage Ratio" means, (i) on the Restatement Date, the ratio
of (x) the aggregate Indebtedness on such date of the Borrower and the
Subsidiaries, determined on a consolidated basis in accordance with GAAP, to (y)
Consolidated EBITDA for the Four Quarter Trailing Period, (ii) as of the last
day of the first fiscal quarter ending after the Restatement Date, the ratio of
(x) the aggregate Indebtedness on such date of the Borrower and the
Subsidiaries, determined on a consolidated basis in accordance with GAAP, to (y)
Consolidated EBITDA for fiscal quarter then ended multiplied by four, (iii) as
of the last day of the second fiscal quarter ending after the Restatement Date,
the ratio of (x) the aggregate Indebtedness on such date of the Borrower and the
Subsidiaries, determined on a consolidated basis in accordance with GAAP, to (y)
Consolidated EBITDA for the two fiscal quarters then ended multiplied by two,
(iv) as of the last day of the third fiscal quarter ending after the Restatement
Date, the ratio of (x) the aggregate Indebtedness on such date of the Borrower
and the Subsidiaries, determined on a consolidated basis in accordance with
GAAP, to (y) Consolidated EBITDA for the three fiscal quarters then ended
multiplied by 1.3333, and (v) as of the last day of the fourth fiscal quarter
ending after the Restatement Date and the last day of each fiscal quarter
thereafter, the ratio of (x) the aggregate Indebtedness on such date of the
Borrower and the Subsidiaries, determined on a consolidated basis in accordance
with GAAP, to (y) Consolidated EBITDA for the Four Quarter Trailing Period.
"Lien" means any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other), or other security agreement or security
interest of any kind or nature whatsoever, including any conditional sale or
other title retention agreement and any capital or financing lease having
substantially the same economic effect as any of the foregoing.
"Line of Business" means the manufacturing and distribution of
electronic components and any business reasonably similar, complimentary,
ancillary or related thereto.
"Liquidity Ratio" means at any time, the ratio at such time of
(i) the sum, without duplication, of (x) cash, (y) Cash Equivalents and (z)
marketable securities to (ii) funded Indebtedness, in each case of the Borrower
and the Subsidiaries on a consolidated basis in accordance with GAAP.
"Loans" means the loans made by the Lender to the Borrower
pursuant to this Agreement.
"Loan Documents" means, collectively, this Agreement, the
Note, the Security Documents, each Secured Hedging Agreement and all other
agreements, instruments and documents executed or delivered in connection
herewith.
13
"Loan Parties" means, collectively, the Borrower, each
Subsidiary Guarantor and each other Person (other than the Lender or any of its
Affiliates) party to a Loan Document.
"Managing Person" means, with respect to any Person that is
(i) a corporation, its board of directors, (ii) a limited liability company, its
board of control, managing member or members, (iii) a limited partnership, its
general partner or general partners, (iv) a general partnership or a limited
liability partnership, its managing partner or managing partners or executive
committee or (v) any other Person, the managing body thereof or other Person
analogous to the foregoing.
"Margin Stock" has the meaning set forth in Regulation U.
"Material Adverse" means, with respect to any change or
effect, a material adverse change in, or effect on, as the case may be, (i) the
business, assets, operations, prospects or condition, financial or otherwise, of
the Borrower and the Subsidiaries taken as a whole, (ii) the ability of any Loan
Party to perform its obligations under the Loan Documents to which it is a
party, (iii) the rights of, or benefits available to, the Lender under the Loan
Documents, in any material respect, (iv) the legality or enforceability of any
Loan Document or (v) the perfection or priority of any Lien granted under any of
the Security Documents.
"Material Foreign Subsidiary" means each direct or indirect
Foreign Subsidiary of the Borrower or any Subsidiary Guarantor which, as of the
last day of the most recently completed fiscal quarter, satisfied either one or
both of the following tests:
(i) such Foreign Subsidiary's total assets (after
intercompany eliminations) exceeds 10% of consolidated total assets of
the Loan Parties; or
(ii) such Foreign Subsidiary's income (not to include
losses) for such fiscal quarter from continuing operations before
income taxes, extraordinary items and the cumulative effect of a change
in accounting principles of such Foreign Subsidiary for such period
exceeds 10% of the income (not to include losses) for the last twelve
months ending as of the last day of such fiscal quarter from continuing
operations before income taxes, extraordinary items and the cumulative
effect of a change in accounting principles of the Loan Parties
determined on a consolidated basis in accordance with GAAP, provided
that if such Foreign Subsidiary was not a Subsidiary as of the
beginning of such fiscal quarter, the determination shall be calculated
on a pro forma basis as if such Person became a Foreign Subsidiary on
the first day of such fiscal quarter.
"Material Subsidiary" means any direct or indirect Subsidiary
(other than the Excluded Subsidiaries) as to which any of the following tests
are or have at any time on or after the Restatement Date been met: (A) the
Borrower's and the other Subsidiaries' investments in and advances to such
Subsidiary are greater than or equal to 5% of the total assets of the Borrower
and the Subsidiaries on a consolidated basis as of the last day of the most
recently completed fiscal year of the Borrower, (B) such Subsidiary's
14
proportionate share of the total assets (after intercompany eliminations) of the
Borrower and the Subsidiaries on a consolidated basis is greater than or equal
to 5% of the total assets of the Borrower and the Subsidiaries on a consolidated
basis as of the last day of the most recently completed fiscal year of the
Borrower, or (C) the income from continuing operations before income taxes,
extraordinary items and the cumulative effect of a change in accounting
principles of such Subsidiary is greater than or equal to 5% of such income of
the Borrower and the Subsidiaries on a consolidated basis as of the last day of
the most recently completed fiscal year of the Borrower.
"Material Liabilities" means, on any date, with respect to the
Borrower, any Subsidiary, or any combination thereof: (i) all Indebtedness
(other than Indebtedness under the Loan Documents), (ii) the net termination
obligations in respect of one or more Hedging Agreements (calculated as if such
Hedging Agreements were terminated as of such date), and (iii) other
liabilities, in each case whether as principal, guarantor, surety or other
obligor, in an aggregate principal amount exceeding $100,000.
"Minimum Amount" means in respect of (i) ABR Advances,
$100,000 or such amount plus a whole multiple of $50,000 in excess thereof, and
(ii) Eurodollar Advances, $100,000 or such amount plus a whole multiple of
$100,000 in excess thereof.
"Multiemployer Plan" means a Pension Plan which is a
multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"Non-Guarantor Subsidiary" at any time, the Excluded
Subsidiaries and any other Subsidiary that is not a Subsidiary Guarantor at such
time.
"Note" means an amended and restated promissory note,
substantially in the form of Exhibit A, payable to the order of the Lender, made
by the Borrower and dated the Restatement Date, including all replacements
thereof and substitutions therefor.
"Notice of Conversion" has the meaning set forth in Section
3.3(a).
"Obligations" means, collectively, the Borrower Obligations
and the Guarantor Obligations.
"Organizational Documents" means as to any Person which is (i)
a corporation, the certificate or articles of incorporation and by-laws of such
Person, (ii) a limited liability company, the limited liability company
agreement or similar agreement of such Person, (iii) a partnership, the
partnership agreement or similar agreement of such Person, or (iv) any other
form of entity or organization, the organizational documents analogous to the
foregoing.
"Original Credit Agreement" has the meaning set forth in
Recital A.
"Other Taxes" means any and all current or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery, registration or enforcement of,
15
or any amendment, supplement or modification of, or any waiver or consent under
or in respect of, the Loan Documents or otherwise with respect to the Loan
Documents.
"Payment Office" means the office of the Lender set forth in
Section 9.2(b).
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA, or any Governmental
Authority succeeding to the functions thereof.
"PC Acquisition" means the acquisition of the Passive
Components division of Insilco Holdings Co., Inc. by Bel Fuse Inc., Bel Fuse
Ltd., Bel Fuse Macau, L.D.A., Bel Transformer Inc. and Bel Connector Inc. in
accordance with the terms of the PC Asset Purchase Agreement.
"PC Acquisition Documents" means, collectively, (i) PC Asset
Purchase Agreement and (ii) each other agreement, instrument or other document
executed or delivered in connection with the closing under the foregoing,
including all approvals and consents obtained.
"PC Asset Purchase Agreement" means the Stock and Asset
Purchase Agreement, dated as of December 15, 2002, among Bel Fuse Inc., Bel Fuse
Ltd., Bel Fuse Macau, L.D.A., Bel Transformer Inc. and Bel Connector Inc. and
Insilco Technologies, Inc.
"Pension Plan" means, at any date of determination, any
employee pension benefit plan (other than a Multiemployer Plan), the funding
requirements of which (under Section 302 of ERISA or Section 412 of the Code)
are, or at any time within the six years immediately preceding such date, were,
in whole or in part, the responsibility of the Borrower or any ERISA Affiliate.
"Permitted Liens" has the meaning set forth in Section 7.2.
"Person" means a natural person, firm, partnership, limited
liability company, joint venture, corporation, association, business enterprise,
joint stock company, unincorporated association, trust, Governmental Authority
or any other entity, whether acting in an individual, fiduciary, or other
capacity, and for the purpose of the definition of "ERISA Affiliate", a trade or
business.
"Prime Rate" means the rate of interest per annum publicly
announced in New York City by BNY from time to time as its prime commercial
lending rate, such rate to be adjusted automatically (without notice) on the
effective date of any change in such publicly announced rate.
"Regulation D, T, U and X" means Regulations D, T, U and X,
respectively, of the Board of Governors as from time to time in effect and all
official rulings and interpretations thereunder or thereof.
16
"Related Parties" means, with respect to any Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Payment" has the meaning set forth in Section
3.7(a).
"Restatement Date" has the meaning set forth in Recital D.
"Restricted Payment" has the meaning set forth in Section 7.7.
"Revolving Commitment" means the commitment of the Lender to
make Revolving Loans hereunder, expressed as an amount representing the maximum
aggregate amount of the Revolving Credit Exposure permitted hereunder, as such
commitment may be reduced or increased from time to time pursuant to Section
2.3. The initial amount of the Lender's Revolving Commitment is $10,000,000.
"Revolving Credit Exposure" means, at any time, the aggregate
outstanding principal amount of the Revolving Loans at such time.
"Revolving Loan" means a loan referred to in Section 2.1(a)
and made pursuant to Section 2.4.
"Revolving Maturity Date" means March 21, 2006, or such
earlier date on which the Revolving Loans shall become due and payable, whether
by acceleration or otherwise.
"SEC" means the Securities and Exchange Commission or any
Governmental Authority succeeding to the functions thereof.
"Secured Hedging Agreement" means any Hedging Agreement
entered into by the Borrower with the Lender (or an Affiliate thereof).
"Security Agreement" means the Amended and Restated Security
Agreement, substantially in the form of Exhibit G, among the Borrower, the
Subsidiary Guarantors and the Lender.
"Security Documents" means, collectively, (i) upon the
execution and delivery thereof, the Security Agreement, (ii) each supplement to
the Security Agreement executed and delivered pursuant to Section 6.9, (iii)
each Foreign Pledge Agreement and (iv) all other instruments and documents
delivered pursuant to Section 6.9 or 6.10 to secure any of the Obligations.
"Special Counsel" means Bryan Cave LLP, or such other counsel
selected by the Lender as, special counsel to the Lender hereunder.
"Subsidiary" means, with respect to any Person (the "parent")
at any date, any other Person (i) the accounts of which would be consolidated
with those of the parent in the parent's consolidated financial statements if
such financial statements were
17
prepared in accordance with GAAP as of such date, (ii) of which securities or
other ownership interests representing more than 50% of the equity or more than
50% of the ordinary voting power or, in the case of a partnership, more than 50%
of the general partnership interests or more than 50% of the profits or losses
of which are, as of such date, owned, controlled or held by the parent or one or
more subsidiaries of the parent. Unless otherwise qualified, all references to
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary
or Subsidiaries of the Borrower.
"Subsidiary Guarantor" means each Domestic Subsidiary party to
this Agreement, provided that the Excluded Subsidiaries shall not be Subsidiary
Guarantors.
"Tax" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, by a
Governmental Authority, on whomsoever and wherever imposed, levied, collected,
withheld or assessed.
"Term Commitment" means the commitment of the Lender to make
the Term Loan hereunder. The amount of the Term Commitment on the Restatement
Date is $10,000,000.
"Term Loan" means a loan referred to in Section 2.1(b) and
made pursuant to Section 2.4.
"Term Maturity Date" means March 21, 2008.
"Transactions" means, collectively, (i) the transactions
contemplated by the Loan Documents and (ii) the PC Acquisition.
"Type", when used in reference to a Loan or Advance, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Advance, is determined by reference to the Eurodollar Rate or the Alternate Base
Rate.
"Unconsolidated Investment" means, as of any date, any
investment made by the Borrower or any Subsidiary in any other Person that,
pursuant to GAAP as in effect on such date, would not be consolidated with the
Borrower for financial reporting purposes immediately after giving effect to
such investment.
"United States" means the United States of America.
"Upfront Fee" has the meaning set forth in Section 3.2(b).
"Wholly Owned" means, with respect to any Subsidiary of any
Person, 100% of the outstanding Capital Stock of such Subsidiary is owned,
directly or indirectly, by such Person.
"Withdrawal Liability" means, with respect to any Person,
liability of such Person to a Multiemployer Plan as a result of a complete or
partial withdrawal from such
18
Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title
IV of ERISA.
Section 1.2. Accounting Terms
-----------------
As used in the Loan Documents and in any certificate, opinion
or other document made or delivered pursuant thereto, accounting terms not
defined in Section 1.1, and accounting terms partly defined in Section 1.1, to
the extent not defined, shall have the respective meanings given to them under
GAAP. If any change in GAAP would affect the computation of any financial ratio
or requirement set forth in this Agreement, the Lender and the Borrower shall
negotiate in good faith to amend such ratio or requirement to reflect such
change in GAAP, provided that, until so amended, (i) such ratio or requirement
shall continue to be computed in accordance with GAAP prior to such change and
(ii) the Borrower shall provide to the Lender financial statements and other
documents required under this Agreement (or such other items as the Lender may
reasonably request) setting forth a reconciliation between calculations of such
ratio or requirement before and after giving effect to such change.
Section 1.3. Rules of Interpretation
------------------------
(a) Unless expressly provided in a Loan Document to the
contrary, (i) the words "hereof", "herein", "hereto" and "hereunder" and similar
words when used in each Loan Document shall refer to such Loan Document as a
whole and not to any particular provision thereof, (ii) article, section,
subsection, schedule and exhibit references contained therein shall refer to
article, section, subsection, schedule and exhibit thereof or thereto, (iii) the
words "include" and "including", shall mean that the same shall be "included,
without limitation", (iv) any definition of, or reference to, any agreement,
instrument, certificate or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified, (v) any reference herein to any Person shall
be construed to include such Person's successors and assigns, (vi) the words
"asset" and "property" shall be construed to have the same meaning and to refer
to any and all tangible and intangible assets and properties, including cash,
securities, accounts and contract rights, (vii) words in the singular number
include the plural, and words used therein in the plural include the singular,
(viii) any reference to a time shall refer to such time in New York, (ix) in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding", and (x) references therein to a fiscal period shall
refer to that fiscal period of the Borrower.
(b) Article and Section headings have been inserted in the
Loan Documents for convenience only and shall not be construed to be a part
thereof.
Section 1.4. Classification of Loans and Advances
------------------------------------
For purposes of this Credit Agreement, Loans may be classified
and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a
"Eurodollar Loan") or
19
by Class and Type (e.g., a "Eurodollar Revolving Loan"). Advances may also be
classified and referred to by Class (e.g., a "Revolving Advance") or by Type
(e.g., a "Eurodollar Advance") or by Class and Type (e.g., a "Eurodollar
Revolving Advance").
ARTICLE 2. AMOUNT AND TERMS OF THE LOANS
-----------------------------
Section 2.1. Loans
-----
(a) Subject to the terms and conditions hereof, the Lender
agrees to make revolving credit loans in Dollars (each a "Revolving Loan" and
collectively with all other Loans of the Lender, the "Revolving Loans") to the
Borrower from time to time on any Business Day during the period from the
Restatement Date to the Business Day proceeding the Revolving Maturity Date,
provided that after giving effect thereto the Revolving Credit Exposure would
not exceed the Revolving Commitment. During such period, the Borrower may
borrow, prepay in whole or in part and reborrow under the Revolving Commitment,
all in accordance with the terms and conditions of this Agreement. The
outstanding principal balance of each Revolving Loan shall be due and payable on
the Revolving Maturity Date.
(b) Subject to the terms and conditions hereof, the Lender
agrees to make a term loan in Dollars (the "Term Loan") to the Borrower in a
single draw on the Restatement Date in a principal amount not exceeding the Term
Commitment. Any portion of the Term Loan which is prepaid or repaid may not be
reborrowed. The outstanding principal balance of the Term Loan shall be due and
payable on the Term Maturity Date. The Term Commitment shall be reduced to $0 at
the close of business on the Restatement Date.
Section 2.2. Procedure for Borrowing
------------------------
(a) To request a Loan, the Borrower shall notify the Lender by
the delivery of a Borrowing Request, which shall be sent by facsimile and shall
be irrevocable (confirmed promptly, and in any event within five Business Days,
by the delivery to the Lender of a Borrowing Request manually signed by the
Borrower), no later than 11:00 a.m., three Business Days prior to the requested
Borrowing Date, in the case of Eurodollar Advances, and 11:00 a.m., one Business
Day prior to the requested Borrowing Date, in the case of ABR Advances,
specifying (A) the aggregate principal amount to be borrowed, (B) the requested
Borrowing Date, (C) whether such Loan is to be a Revolving Loan or a Term Loan,
(D) whether such borrowing is to consist of one or more Eurodollar Advances, ABR
Advances, or a combination thereof and (E) if the Loan is to consist of one or
more Eurodollar Advances, the amount and length of the Interest Period for each
Eurodollar Advance. The amount of each (i) Eurodollar Advance to be made on a
Borrowing Date, when aggregated with all amounts to be converted to, or
continued as, a Eurodollar Advance on such date and having the same Interest
Period as such first Eurodollar Advance, shall equal the Minimum Amount and (ii)
each ABR Advance made on each Borrowing Date shall equal the Minimum Amount or,
if less, the unused portion of the Revolving Commitment.
20
(b) Subject to the satisfaction of the terms and conditions of
this Agreement, the Lender shall on the requested Borrowing Date make available
the proceeds of the requested Loan to the Borrower at the Payment Office by
crediting the account of the Borrower on the books of the Lender at such office
with said amount.
Section 2.3. Termination and Reduction of Revolving Commitment
-------------------------------------------------
(a) Voluntary Termination or Reductions. The Borrower may,
upon at least three Business Days' prior written notice to the Lender, (A) at
any time when the Revolving Credit Exposure shall be zero, terminate the
Revolving Commitment, and (B) at any time and from time to time when the
Revolving Commitment shall exceed the Revolving Credit Exposure (after giving
effect to any contemporaneous payment or payment of Revolving Loans),
permanently reduce the Revolving Commitment by a sum not greater than the amount
of such excess, provided, however, that each such partial reduction shall be in
the amount of $1,000,000 or such amount plus a whole multiple of $500,000 in
excess thereof.
(b) Reductions in General. Simultaneously with each reduction
of the Revolving Commitment, the Borrower shall pay the Commitment Fee accrued
on the amount by which the Revolving Commitment has been reduced.
(c) Mandatory Reductions. Unless previously terminated, the
Revolving Commitment shall terminate on the Revolving Maturity Date.
Section 2.4. Prepayments of the Loans
------------------------
(a) Voluntary Prepayments. The Borrower shall have the right
at any time and from time to time to prepay all or any portion of the Loans
without premium or penalty (but subject to Section 3.5), by delivering to the
Lender an irrevocable written notice thereof at least one Business Day prior to
the proposed prepayment date, in the case of Loans consisting of ABR Advances,
and at least three Business Days prior to the proposed prepayment date, in the
case of Loans consisting of Eurodollar Advances, specifying whether the Loans to
be prepaid consist of Revolving Loans or all or a portion of the Term Loan or
ABR Advances, Eurodollar Advances, or a combination thereof, the amount to be
prepaid and the date of prepayment, whereupon the amount specified in such
notice shall be due and payable on the date specified. Each partial prepayment
of the Loans pursuant to this subsection shall be in an amount equal to the
Minimum Amount, or, if less, the outstanding principal balance of the Loans.
After giving effect to any partial prepayment with respect to Eurodollar
Advances which were made (whether as the result of a borrowing, a conversion or
a continuation) on the same date and which had the same Interest Period, the
outstanding principal balance of such Eurodollar Advances shall equal or exceed
(subject to Section 3.3) the Minimum Amount.
(b) Mandatory Prepayments of Revolving Loans. Simultaneously
with each reduction or termination of the Revolving Commitment, the Borrower
shall prepay the Loans by an amount equal to the lesser of (i) the Revolving
Credit Exposure, or (ii)
21
the excess of the Revolving Credit Exposure over the Revolving Commitment as so
reduced or terminated.
(c) Term Loan Amortization. On each date set forth below, the
aggregate unpaid principal balance of the Term Loan shall be due and payable in
the amount set forth below adjacent to such date under the heading "Amount":
=================================================================================================
DATE AMOUNT DATE AMOUNT
-------------------------------------------------------------------------------------------------
June 30, 2003 $500,000 December 31, 2005 $500,000
-------------------------------------------------------------------------------------------------
September 30, 2003 $500,000 March 31, 2006 $500,000
-------------------------------------------------------------------------------------------------
December 31, 2003 $500,000 June 30, 2006 $500,000
-------------------------------------------------------------------------------------------------
March 31, 2004 $500,000 September 30, 2006 $500,000
-------------------------------------------------------------------------------------------------
June 30, 2004 $500,000 December 31, 2006 $500,000
-------------------------------------------------------------------------------------------------
September 30, 2004 $500,000 March 31, 2007 $500,000
-------------------------------------------------------------------------------------------------
December 31, 2004 $500,000 June 30, 2007 $500,000
-------------------------------------------------------------------------------------------------
March 31, 2005 $500,000 September 30, 2007 $500,000
-------------------------------------------------------------------------------------------------
June 30, 2005 $500,000 December 31, 2007 $500,000
-------------------------------------------------------------------------------------------------
September 30, 2005 $500,000 Term Maturity Date $500,000
=================================================================================================
(d) In General. Simultaneously with each prepayment of a Loan,
the Borrower shall prepay all accrued interest on the amount prepaid through the
date of prepayment. Each prepayment of the Term Loan shall be applied to the
remaining installments of principal required under Section 2.4(d), in the
inverse order of maturity.
Section 2.5. Payments; Set-Off
-----------------
(a) Payments. Except as provided below, all payments,
including prepayments, of principal and interest on the Loans, the Commitment
Fee, the Upfront Fee and of all other amounts to be paid by the Borrower under
the Loan Documents, (the Commitment Fee, the Upfront Fee together with all of
such other fees, being sometimes hereinafter collectively referred to as the
"Fees") shall be made to the Lender, prior to 1:00 p.m. on the date such payment
is due at the Payment Office, in Dollars and in immediately available funds,
without set-off, offset, recoupment or counterclaim. The failure of the Borrower
to make any such payment by such time shall not constitute a Default, provided
that such payment is made on such due date, but any such payment made after 1:00
p.m. on such due date shall be deemed to have been made on the next Business Day
for the purpose of calculating interest on the Loans. If any payment under the
Loan Documents shall be due and payable on a day which is not a Business Day,
the due date thereof (except as otherwise provided with respect to Interest
Periods) shall be extended to the next Business Day and (except with respect to
payments in respect of the Fees) interest shall be payable at the applicable
rate specified herein during such extension, provided, however, that if such
next Business Day would be after the Revolving Maturity Date or the Term
Maturity Date, as applicable, such payment shall instead be due on the
immediately preceding Business Day.
(b) Set-Off. In addition to any rights and remedies of the
Lender provided by law, upon the occurrence of an Event of Default and the
acceleration of the
22
obligations owing in connection with the Loan Documents, or at any time upon the
occurrence and during the continuance of an Event of Default under Sections
8.1(a) or (b), the Lender shall have the right, without prior notice to the
Borrower or any other Loan Party, any such notice being expressly waived by the
Borrower and each other Loan Party to the extent not prohibited by applicable
law, to set-off and apply against any indebtedness, whether matured or
unmatured, of the Borrower or such other Loan Party, as the case may be, to the
Lender any amount owing from the Lender to the Borrower or such other Loan
Party, as the case may be, at, or at any time after, the happening of any of the
above-mentioned events. To the extent not prohibited by applicable law, the
aforesaid right of set-off may be exercised by the Lender against the Borrower
or such other Loan Party, as the case may be, or against any trustee in
bankruptcy, custodian, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor of the
Borrower or such other Loan Party, as the case may be, or against anyone else
claiming through or against the Borrower or such other Loan Party, as the case
may be, or such trustee in bankruptcy, custodian, debtor in possession, assignee
for the benefit of creditors, receiver, or execution, judgment or attachment
creditor, notwithstanding the fact that such right of set-off shall not have
been exercised by the Lender prior to the making, filing or issuance, or service
upon the Lender of, or of notice of, any such petition, assignment for the
benefit of creditors, appointment or application for the appointment of a
receiver, or issuance of execution, subpoena, order or warrant. The Lender
agrees promptly to notify the Borrower after any such set-off and application
made by the Lender, provided that the failure to give such notice shall not
affect the validity of such set-off and application.
ARTICLE 3. INTEREST, FEES, YIELD PROTECTIONS, ETC.
---------------------------------------
Section 3.1. Interest Rate and Payment Dates
-------------------------------
(a) Advances. Each (i) ABR Advance shall bear interest at a
rate per annum equal to the Alternate Base Rate plus the Applicable Margin and
(ii) Eurodollar Advance shall bear interest at a rate per annum equal to the
Eurodollar Rate for the applicable Interest Period plus the Applicable Margin.
(b) Event of Default; Late Charges. Notwithstanding the
foregoing, after the occurrence and during the continuance of an Event of
Default under Section 8.1(a) or 8.1(b), the outstanding principal balance of the
Loans shall bear interest at a rate per annum equal to 2% plus the rate
otherwise applicable thereto as provided in subsection (a) above. If any
interest, Fee or other amount payable under the Loan Documents is not paid when
due (whether at the stated maturity thereof, by acceleration or otherwise), such
overdue amount shall bear interest at a rate per annum equal to the Alternate
Base Rate plus 2%, from the date of such nonpayment until paid in full (whether
before or after the entry of a judgment thereon). All such interest shall be
payable on demand.
(c) Payment of Interest. Except as otherwise provided in
subsection (b) above, interest shall be payable in arrears on the following
dates and upon each payment (including prepayment) of the Loans:
23
(i) in the case of an ABR Advance, on the last
Business Day of each March, June, September and December commencing on
the first of such days to occur after such ABR Advance is made or any
Eurodollar Advance is converted to an ABR Advance;
(ii) in the case of a Eurodollar Advance, on the
last day of the Interest Period applicable thereto and, if such
Interest Period is longer than three months, the last Business Day of
each three month interval occurring during such Interest Period; and
(iii) in the case of all Advances comprising a
Revolving Loan, the Revolving Maturity Date, and in the case of all
Advances comprising the Term Loan, the Term Maturity Date.
(d) Computations. Interest on (i) ABR Advances to the extent
based on the Prime Rate shall be calculated on the basis of a 365 or 366-day
year (as the case may be), and (ii) ABR Advances to the extent based on the
Federal Funds Effective Rate and on Eurodollar Advances shall be calculated on
the basis of a 360-day year, in each case, for the actual number of days
elapsed. The Lender shall, as soon as practicable, notify the Borrower of the
effective date and the amount of each such change in the Prime Rate, but any
failure to so notify shall not in any manner affect the obligation of the
Borrower to pay interest on the Loans in the amounts and on the dates required.
Each determination of a rate of interest by the Lender pursuant to the Loan
Documents shall be conclusive and binding on all parties hereto absent manifest
error. The Borrower acknowledges that to the extent interest payable on ABR
Advances is based on the Prime Rate, such rate is only one of the bases for
computing interest on loans made by the Lender, and by basing interest payable
on ABR Advances on the Prime Rate, the Lender has not committed to charge, and
the Borrower has not in any way bargained for, interest based on a lower or the
lowest rate at which the Lender may now or in the future make loans to other
borrowers.
Section 3.2. Fees
----
(a) Commitment Fee. The Borrower agrees to pay to the Lender,
a fee (the "Commitment Fee"), during the period from the Restatement Date
through the Business Day immediately preceding the Revolving Maturity Date, at a
rate per annum equal to the Applicable Margin on the average daily unused
Revolving Commitment. The Commitment Fee shall be payable (i) quarterly in
arrears on the last Business Day of each March, June, September and December
during such period, commencing on the first such day following the Restatement
Date, (ii) on the date of any reduction in the Revolving Commitment (to the
extent of such reduction) and (iii) on the Revolving Maturity Date. The
Commitment Fee shall be calculated on the basis of a 360 day year, as the case
may be, for the actual number of days elapsed.
(b) Upfront Fee. The Borrower agrees to pay to the Lender on the Restatement
Date, an upfront fee (the "Upfront Fee"), in an amount equal to 0.50% of the
Commitments.
24
Section 3.3. Conversions
------------
(a) The Borrower may elect from time to time to convert one or
more Eurodollar Advances to ABR Advances by giving the Lender at least one
Business Day's prior irrevocable notice of such election, specifying the amount
to be converted, provided, that any such conversion of Eurodollar Advances shall
only be made on the last day of the Interest Period applicable thereto. In
addition, the Borrower may elect from time to time to (i) convert ABR Advances
comprising all or a portion of Loans of any Class to Eurodollar Advances and
(ii) continue Eurodollar Advances as new Eurodollar Advances by selecting a new
Interest Period therefor, in each case by giving the Lender at least three
Business Days' prior irrevocable notice of such election, in the case of a
conversion to, or continuation of, Eurodollar Advances, specifying the amount to
be so converted or continued and the initial Interest Period relating thereto,
provided that any such conversion of ABR Advances to Eurodollar Advances shall
only be made on a Business Day and any such continuation of Eurodollar Advances
as new Eurodollar Advances shall only be made on the last day of the Interest
Period applicable to the Eurodollar Advances which are to be continued as such
new Eurodollar Advances. Each such notice (a "Notice of Conversion") shall be
substantially in the form of Exhibit C, shall be irrevocable and shall be given
by facsimile (confirmed promptly, and in any event within five Business Days, by
the delivery to the Lender of a Notice of Conversion manually signed by the
Borrower). Advances may be converted or continued pursuant to this Section 3.3
in whole or in part, provided that the amount to be converted to, or continued
as, each Eurodollar Advance, when aggregated with any Eurodollar Advance to be
made on such date in accordance with Section 2.2 and having the same Interest
Period as such first Eurodollar Advance, shall equal the Minimum Amount.
(b) Notwithstanding anything in this Agreement to the
contrary, upon the occurrence and during the continuance of an Event of Default,
the Borrower shall have no right to elect to convert any existing ABR Advance to
a new Eurodollar Advance or to continue any existing Eurodollar Advance as a new
Eurodollar Advance. In such event, all ABR Advances shall be automatically
continued as ABR Advances and all Eurodollar Advances shall be automatically
converted to ABR Advances on the last day of the Interest Period applicable to
such Eurodollar Advance.
(c) Each conversion or continuation shall be effected by the
Lender by applying the proceeds of the new ABR Advance or Eurodollar Advance, as
the case may be, to the Advances (or portion thereof) being converted (it being
understood that any such conversion or continuation shall not constitute a
borrowing for purposes of Article 4).
Section 3.4. Concerning Interest Periods
----------------------------
(a) No Interest Period in respect of a Eurodollar Advance
comprising all or a portion of (i) a Revolving Loan shall end after the
Revolving Maturity Date or (ii) the Term Loan shall end after the Term Maturity
Date.
25
(b) Any Interest Period which begins on the last Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on the
last Business Day of a calendar month.
(c) If an Interest Period would otherwise end on a day which
is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day, unless the result of such extension would be to carry
such Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Business Day.
(d) If the Borrower shall have failed to timely elect a
Eurodollar Advance under Section 3.3 in connection with any conversion to, or
continuation of, a Eurodollar Advance, such Advance requested to be converted
to, or continued as, a Eurodollar Advance shall thereafter be an ABR Advance
until such time, if any, as the Borrower shall elect a new Eurodollar Advance
pursuant to Section 3.3.
(e) The Borrower shall not be permitted to have more than
eight Eurodollar Advances outstanding at any one time.
Section 3.5. Funding Loss
------------
Notwithstanding anything contained herein to the contrary, if
the Borrower shall fail to borrow, convert or continue a Eurodollar Advance on a
Borrowing Date or a Conversion Date after it shall have given notice to do so in
which it shall have requested a Eurodollar Advance, or if a Eurodollar Advance
shall be terminated for any reason prior to the last day of the Interest Period
applicable thereto, or if, while a Eurodollar Advance is outstanding, any
repayment or prepayment of such Eurodollar Advance is made for any reason
(including as a result of acceleration or illegality) on a date which is prior
to the last day of the Interest Period applicable thereto, the Borrower agrees
to indemnify the Lender against, and to pay on demand to the Lender the amount
(calculated by the Lender using any reasonable method chosen by it which is
customarily used by it for such purpose) equal to any loss or out-of-pocket
expense suffered by the Lender as a result of such failure to convert, or
continue, or such termination, repayment or prepayment, including any loss, cost
or expense suffered by the Lender in liquidating or employing deposits acquired
to fund or maintain the funding of such Eurodollar Advance or redeploying funds
prepaid or repaid, in amounts which correspond to such Eurodollar Advance and
any reasonable internal processing charge customarily charged by the Lender in
connection therewith.
Section 3.6. Increased Costs; Illegality, etc.
---------------------------------
(a) Increased Costs. If any Change in Law shall impose, modify
or make applicable any reserve, special deposit, compulsory loan, assessment,
increased cost or similar requirement against assets held by, or deposits of, or
advances or loans by, or other credit extended by, or any other acquisition of
funds by, any office of the Lender in respect of its Eurodollar Advances which
is not otherwise included in the
26
determination of a Eurodollar Rate and the result thereof is to increase the
cost to the Lender of making, renewing, converting or maintaining its Eurodollar
Advances or its commitment to make such Eurodollar Advances, or to reduce any
amount receivable under the Loan Documents in respect of its Eurodollar
Advances, then, in any such case, the Borrower shall pay the Lender such
additional amounts as is sufficient to compensate the Lender for such additional
cost or reduction in such amount receivable which the Lender deems to be
material (as determined by the Lender.)
(b) Capital Adequacy. If the Lender determines that any Change
in Law relating to capital requirements has or would have the effect of reducing
the rate of return on the Lender's capital or on the capital of the Lender's
holding company on the Loans to a level below that which the Lender (or its
holding company) would have achieved or would thereafter be able to achieve but
for such Change in Law (after taking into account the Lender's (or such holding
company's) policies regarding capital adequacy), the Borrower shall pay to the
Lender (or such holding company) such additional amount or amounts as will
compensate the Lender (or such holding company) for such reduction.
(c) Illegality. Notwithstanding any other provision hereof, if
the Lender shall reasonably determine that any law, regulation, treaty or
directive, or any change therein or in the interpretation or application
thereof, shall make it unlawful for it to make or maintain any Eurodollar
Advance as contemplated by this Agreement, the Lender shall promptly notify the
Borrower thereof, and (i) the commitment of the Lender to make such Eurodollar
Advances or convert ABR Advances to Eurodollar Advances shall forthwith be
suspended, (ii) the Lender shall fund each requested Eurodollar Advance as an
ABR Advance and (iii) the portion of the Loans then outstanding as such
Eurodollar Advances, if any, shall be converted automatically to ABR Advances on
the last day of the then current Interest Period applicable thereto or at such
earlier time as may be required by law. The commitment of the Lender with
respect to Eurodollar Advances shall be suspended until the Lender shall notify
the Borrower that the circumstances causing such suspension no longer exist.
Upon receipt of such notice by the Borrower, the Lender's commitment to make or
maintain Eurodollar Advances shall be reinstated.
(d) Substituted Interest Rate. In the event that the Lender
shall have determined (which determination shall be conclusive and binding upon
the Borrower) that (i) by reason of circumstances affecting the interbank
eurodollar market either adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate applicable pursuant to Section 3.1 or (ii) the
applicable Eurodollar Rate will not adequately and fairly reflect the cost to
the Lender of maintaining or funding loans bearing interest based on such
Eurodollar Rate, with respect to any portion of the Loans that the Borrower has
requested be made as Eurodollar Advances or Eurodollar Advances that will result
from the requested conversion or continuation of any portion of the Advances
into or of Eurodollar Advances (each, an "Affected Advance"), the Lender shall
promptly notify the Borrower (by telephone or otherwise, to be promptly
confirmed in writing) of such determination, on or, to the extent practicable,
prior to the requested Conversion Date for such Affected Advances. If the Lender
shall give such notice, (a)
27
any Affected Advances shall be made as ABR Advances, (b) the Advances (or any
portion thereof) that were to have been converted to Affected Advances shall be
converted to ABR Advances and (c) any outstanding Affected Advances shall be
converted, on the last day of the then current Interest Period with respect
thereto, to ABR Advances. Until any notice under clauses (i) or (ii), as the
case may be, of this subsection (d) has been withdrawn by the Lender, no further
Eurodollar Advances shall be required to be made by the Lender, nor shall the
Borrower have the right to convert all or any portion of the Loans to Eurodollar
Advances.
(e) Payment; Certificates. Each payment pursuant to
subsections (a) or (b) above shall be made within 10 days after demand therefor,
which demand shall be accompanied by a certificate of the Lender demanding such
payment setting forth the calculations of the additional amounts payable
pursuant thereto. Each such certificate shall be presumptively correct absent
manifest error. No failure by the Lender to demand, and no delay in demanding,
compensation for any increased cost shall constitute a waiver of its right to
demand such compensation at any time. Failure or delay on the part of the Lender
to demand compensation pursuant to this Section shall not constitute a waiver of
the Lender's right to demand such compensation; provided that the Borrower shall
not be required to compensate the Lender pursuant to this Section for any
increased costs or reductions incurred more than 90 days prior to the date that
the Lender notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of the Lender's intention to claim
compensation therefor; provided further that, if the Change in Law giving rise
to such increased costs or reductions is retroactive, then the 90-day period
referred to above shall be extended to include the period of retroactive effect
thereof.
Section 3.7. Taxes
-----
(a) Payments Free of Taxes. All payments by or on account of
the Borrower under any Loan Document to or for the account of the Lender shall
be made free and clear of, and without any deduction or withholding for or on
account of, any and all present or future Indemnified Taxes or Other Taxes,
provided that if the Borrower or any other Person is required by any law, rule,
regulation, order, directive, treaty or guideline to make any deduction or
withholding in respect of such Indemnified Tax or Other Tax from any amount
required to be paid by the Borrower to or on behalf of the Lender under any Loan
Document (each, a "Required Payment"), then (i) the Borrower shall notify the
Lender of any such requirement or any change in any such requirement as soon as
the Borrower becomes aware thereof, (ii) the Borrower shall pay such Indemnified
Tax or Other Tax prior to the date on which penalties attach thereto, such
payment to be made (to the extent that the liability to pay is imposed on the
Borrower) for its own account or (to the extent that the liability to pay is
imposed on the Lender) on behalf and in the name of the Lender, (iii) the
Borrower shall pay to the Lender an additional amount such that the Lender shall
receive on the due date therefor an amount equal to the Required Payment had no
such deduction or withholding been made or required, and (iv) the Borrower
shall, within 30 days after paying such Indemnified Tax or Other Tax, deliver to
the Lender satisfactory evidence of such payment to the relevant Governmental
Authority.
28
(b) Reimbursement for Taxes and Other Taxes Paid by the
Lender. The Borrower shall reimburse the Lender, within ten days after written
demand therefor, for the full amount of all Indemnified Taxes or Other Taxes
paid by the Lender on or with respect to any payment by or on account of any
obligation of the Borrower under the Loan Documents (including Indemnified Taxes
or Other Taxes imposed or asserted on or attributable to amounts payable under
this Section 3.7) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto (other than any such penalties, interest or
expenses that are incurred by the Lender's unreasonably taking or omitting to
take action with respect to such Indemnified Taxes or Other Taxes), whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability delivered to the Borrower by the Lender shall be
presumptively correct absent manifest error. In the event that the Lender
determines that it received a refund or credit for Indemnified Taxes or Other
Taxes paid, or expenses reimbursed, by the Borrower under this Section 3.7, the
Lender shall promptly notify the Borrower of such fact and shall remit to the
Borrower the amount of such refund or credit.
Section 3.8. Changes of Lending Offices
---------------------------
If the Lender (or its holding company, if any) requests
compensation under Section 3.6(a) or (b) or if the Borrower is required to pay
an additional amount to the Lender or any Governmental Authority for the account
of the Lender pursuant to Section 3.7, the Lender will, upon the request of the
Borrower, use reasonable efforts (subject to its overall policy considerations)
to designate a different lending office for funding or booking the Loans or to
assign its rights and obligations hereunder to another of its offices, branches
or affiliates, if, in its good faith judgment, such designation or assignment
(i) would eliminate or reduce future amounts payable under Section 3.6(a) or (b)
or Section 3.7, as the case may be, (ii) would not subject the Lender to any
unreimbursed cost or expense and (iii) would not otherwise be disadvantageous to
the Lender. The Borrower agrees to pay the reasonable costs and expenses
incurred in connection with any such designation or assignment and the Lender
agrees that no assignment fee shall be payable to it pursuant to Section 9.5(b)
in connection therewith. Nothing in this Section 3.7 shall affect or postpone
any of the obligations of the Borrower to make the payments required to the
Lender under Section 3.6(a) or (b) or Section 3.7, incurred prior to any such
designation or assignment.
Article 4. REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Lender as follows:
Section 4.1. Organization and Power
-----------------------
Each of the Borrower and each Subsidiary (i) is duly organized
or formed, validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) has all requisite power and authority to
own its property and to carry on its business as now conducted, and (iii) is
duly qualified to do business and is in good standing in each jurisdiction in
which the nature of the business conducted therein or the
29
property owned by it therein makes such qualification necessary, except where
such failure to qualify or be in good standing, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse
effect.
Section 4.2. Authorization; Enforceability
-----------------------------
The Transactions are within the corporate, partnership or
other analogous powers of each of the Borrower and each Subsidiary party thereto
and have been duly authorized by its Managing Person and, if required, by any
other Person including holders of its Capital Stock. Each Loan Document has been
validly executed and delivered by each Loan Party thereto and constitutes a
legal, valid and binding obligation of each such Loan Party, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at law.
Section 4.3. Governmental Approvals; No Conflicts
-------------------------------------
The Transactions (i) do not require any consent or approval
of, registration or filing with, or any other action by, any Governmental
Authority, except such as have been obtained or made and are in full force and
effect, (ii) will not violate any applicable law, rule or regulation or any
order of any Governmental Authority applicable to the Borrower or any
Subsidiary, which violation would reasonably be expected to have a Material
Adverse effect, (iii) will not violate the Organizational Documents of the
Borrower or any Subsidiary, (iv) will not violate or result in a default under
any indenture, agreement or other instrument binding upon the Borrower or any
Subsidiary or their assets, or give rise to a right thereunder to require any
payment to be made by the Borrower or any Subsidiary which defaults or payments
individually or in the aggregate would reasonably be expected to result in a
Material Adverse effect, and (v) will not result in the creation or imposition
of any Lien on any asset of the Borrower or any Subsidiary other than Permitted
Liens.
Section 4.4. Financial Condition; No Material Adverse Change
-----------------------------------------------
(a) The Borrower has heretofore furnished to the Lender:
(i) a copy of its Form 10-K for the fiscal year
ended December 31, 2001, containing the audited consolidated balance
sheets of the Borrower and its consolidated Subsidiaries as of
December 31, 2001 and December 31, 2000, and the related consolidated
statements of income and stockholder's equity and cash flows for the
periods then ended; and
(ii) the consolidating balance sheets of the
Borrower and the Subsidiaries and the related consolidating statements
of income, stockholders equity and cash flows as of and for the fiscal
year ended December 31, 2001, certified by a Financial Officer.
30
Such financial statements present fairly, in all material
respects, the consolidated financial position and results of operations and cash
flows of the Borrower and its Subsidiaries as of such dates and for such periods
in accordance with GAAP, subject to year-end audit adjustments and the absence
of footnotes in the case of the quarterly statements referred to above. Except
as fully reflected in such financial statements, there are no material
liabilities or obligations with respect to the Borrower or any Subsidiary of any
nature whatsoever (whether absolute, contingent or otherwise and whether or not
due) which are required by GAAP to be disclosed in such financial statements.
(b) Since December 31, 2001, except for the Transactions, each
of the Borrower and each Subsidiary has conducted its business only in the
ordinary course and there has been no Material Adverse change.
Section 4.5. Properties
-----------
(a) Except as set forth on Schedule 4.5, each of the Borrower
and each Subsidiary has good and marketable title to, or valid leasehold
interests in, all of its property, real and personal, material to its business,
subject to no Liens, except Permitted Liens and except for minor defects in
title that do not interfere with its ability to conduct its business as
currently conducted or to utilize such properties for their intended purposes.
(b) Except as set forth on Schedule 4.5, each of the Borrower
and each Subsidiary owns or is licensed to use all patents, trademarks,
tradenames, copyrights and other intellectual property material to its business,
and the use thereof by the Borrower or any Subsidiary does conflict with or
infringe upon the valid rights of others, except for any such conflicts or
infringements that individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse effect.
Section 4.6. Litigation
----------
Except as set forth on Schedule 4.6, there are no actions,
suits or proceedings at law or in equity or by or before any Governmental
Authority (whether purportedly on behalf of the Borrower or any Subsidiary)
pending or, to the knowledge of the Borrower, threatened against the Borrower or
any Subsidiary, or maintained by the Borrower or any Subsidiary or which may
affect the property of the Borrower or any Subsidiary, (i) that, in the good
faith opinion of the Borrower, would reasonably be expected to have an adverse
determination and that, if adversely determined, would reasonably be expected,
individually or in the aggregate, to result in a Material Adverse effect or (ii)
that involve any of the Transactions.
Section 4.7. Environmental Matters
---------------------
Except as set forth on Schedule 4.7 and except with respect to
any other matters that, individually or in the aggregate, would not reasonably
be expected to result in a Material Adverse effect, neither the Borrower nor any
Subsidiary has (i) received written notice or otherwise learned of any claim,
demand, action, event, condition, report
31
or investigation indicating or concerning any potential or actual liability
which individually or in the aggregate would reasonably be expected to result in
a Material Adverse effect, arising in connection with any non-compliance with or
violation of the requirements of any applicable laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Substance (as defined below) or to health and safety matters (collectively,
"Environmental Laws"), (ii) to the best knowledge of the Borrower, any
threatened or actual liability in connection with the release or threatened
release of any Hazardous Substance into the environment which individually or in
the aggregate would reasonably be expected to result in a Material Adverse
effect, (iii) received notice of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release or threatened
release of any Hazardous Substance into the environment for which the Borrower
or any of its Subsidiaries is or would be liable, which liability would
reasonably be expected to result in a Material Adverse effect, or (iv) has
received notice that the Borrower or any of its Subsidiaries is or may be liable
to any Person under any Environmental Law, which liability would reasonably be
expected to result in a Material Adverse effect. Each of the Borrower and each
of its Subsidiaries is in compliance with the financial responsibility
requirements of Environmental Laws to the extent applicable, except in those
cases in which the failure so to comply would not reasonably be expected to
result in a Material Adverse effect. For purposes hereof, "Hazardous Substance"
shall mean any hazardous or toxic substance, material, waste or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes, radioactive materials or any other substance or waste regulated
pursuant to any Environmental Law.
Section 4.8. Compliance with Laws and Agreements; No Default
-----------------------------------------------
Each of the Borrower and each Subsidiary is in compliance with
all laws, regulations and orders of any Governmental Authority applicable to it
or its property and all indentures, agreements and other instruments binding
upon it or its property, except where the failure to do so, individually or in
the aggregate, would not reasonably be expected to result in a Material Adverse
effect.
Section 4.9. Investment Companies and other Regulated Entities
--------------------------------------------------
None of the Borrower, any Subsidiary nor any Person controlled
by, controlling, or under common control with, the Borrower or any Subsidiary,
is (i) an "investment company" as defined in, or subject to regulation under,
the Investment Company Act of 1940, as amended, (ii) a "holding company" as
defined in, or subject to regulation under, the Public Utility Holding Company
Act of 1935 or the Federal Power Act, as amended, or (iii) subject to any
statute or regulation which prohibits or restricts the incurrence of
Indebtedness for borrowed money, including statutes or regulations relative to
common or contract carriers or to the sale of electricity, gas, steam, water,
telephone, telegraph or other public utility services.
32
Section 4.10. Federal Reserve Regulations
---------------------------
(a) Neither the Borrower nor any Subsidiary is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock. After giving
effect to the Transactions and the making of the Loans, Margin Stock will
constitute less than 25% of the consolidated assets (as determined by any
reasonable method) of the Borrower and the Subsidiaries.
(b) No part of the proceeds of the Loans will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, for
any purpose that entails a violation of, or that is inconsistent with, the
provisions of Regulation U or X.
Section 4.11. ERISA
-----
Each Pension Plan is in compliance with ERISA and the Code,
where applicable, in all material respects and no ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, would reasonably be
expected to result in a Material Adverse effect. The present value of all
accumulated benefit obligations under each Pension Plan (based on the
assumptions used for purposes of Statement of Financial Accounting Standards No.
87) did not, as of the date of the most recent financial statements reflecting
such amounts, exceed by more than $0 the fair market value of the assets of such
Pension Plan, and the present value of all accumulated benefit obligations of
all underfunded Pension Plans (based on the assumptions used for purposes of
Statement of Financial Accounting Standards No. 87) did not, as of the date of
the most recent financial statements reflecting such amounts, exceed by more
than $0 the fair market value of the assets of all such underfunded Pension
Plans.
Section 4.12. Taxes
-----
Each of the Borrower and each Subsidiary has timely filed or
caused to be filed all tax returns and reports required to have been filed and
has paid, or caused to be paid, all Taxes required to have been paid by it
except (i) Taxes being contested in good faith by appropriate proceedings and
for which the Borrower or such Subsidiary, as applicable, has set aside on its
books adequate reserves, and (ii) to the extent that the failure to do so would
not reasonably be expected to result in a Material Adverse effect.
Section 4.13. Subsidiaries
------------
As of the Restatement Date, (i) the Borrower has only the
Subsidiaries set forth on, and the authorized, issued and outstanding Capital
Stock of the Borrower and the Subsidiaries and each Subsidiary's jurisdiction of
incorporation or organization is as set forth on, Schedule 4.13, which Schedule
identifies those Subsidiaries which are Material Foreign Subsidiaries and (ii)
the ownership interests in each Subsidiary of the Borrower are duly authorized,
validly issued, fully paid and nonassessable and are owned beneficially and of
record by the Persons set forth on such Schedule 4.13, free and clear of all
Liens (other than Permitted Liens). Except as set forth on Schedule 4.13, none
of the Subsidiaries (other than the Excluded Subsidiaries) has issued any
securities
33
convertible into, or options or warrants for, any common or preferred
equity securities thereof and there are no agreements, voting trusts or
understandings binding upon the Borrower or any Subsidiary (other than the
Excluded Subsidiaries) with respect to the voting securities of the Borrower or
any Subsidiary (other than the Excluded Subsidiaries) or affecting in any manner
the sale, pledge, assignment or other disposition thereof, including any right
of first refusal, option, redemption, call or other right with respect thereto,
whether similar or dissimilar to any of the foregoing. None of the Excluded
Subsidiaries (other than Bel Delaware LLC referred to in clause (i) of the
definition thereof) is engaged in the active conduct of a trade or business or
holds any assets (other than immaterial assets).
Section 4.14. Absence of Certain Restrictions
-------------------------------
No indenture, certificate of designation for preferred stock,
agreement or instrument to which the Borrower or any Subsidiary is a party
(other than this Agreement), prohibits or limits in any way, directly or
indirectly the ability of any Subsidiary to make Restricted Payments or loans
to, to make any advance on behalf of, or to repay any Indebtedness to, the
Borrower or to another Subsidiary.
Section 4.15. Labor Relations
---------------
As of the Restatement Date, there are no material
controversies pending between the Borrower or any Subsidiary and its employees
which might result in a Material Adverse effect.
Section 4.16. Insurance
---------
Schedule 4.16 sets forth a description of all insurance
maintained by or on behalf of the Borrower and the Subsidiaries as of the
Restatement Date. As of the Restatement Date, all premiums in respect of such
insurance that are due and payable have been paid.
Section 4.17. Financial Condition
--------------------
On the Restatement Date and after giving affect to the
consummation of the Transactions, neither the Borrower nor any Subsidiary
Guarantor is Insolvent.
Section 4.18. Security Documents
------------------
(a) The Security Agreement is effective to create in favor of
the Lender, a legal, valid and enforceable security interest in the Collateral
(as defined in the Security Agreement) including the Pledged Securities (as
defined in the Security Agreement) and, when (i) the pledged property
constituting such Collateral is delivered to the Lender, (ii) the financing
statements in appropriate form are filed in the offices specified on Schedule
3.1(a)(v) to the Security Agreement and (iii) all other applicable filings under
the Uniform Commercial Code or otherwise that are required under the Loan
Documents are made, the Security Agreement shall constitute a fully perfected
Lien on, and security interest in, all right, title and interest of the grantors
thereunder in such
34
Collateral (other than the Intellectual Property (as defined in the Security
Agreement)), in each case prior and superior in right to any other Person, other
than with respect to Liens expressly permitted by Section 7.2.
(b) Each Foreign Pledge Agreement, when executed and delivered
as provided herein, will be effective to create in favor of the Lender, a legal,
valid, binding and enforceable first ranking security interest on the collateral
described therein as security for the Obligations. In the case of any Capital
Stock pledged or charged to the Lender under a Foreign Pledge Agreement, when
any share certificates representing such Capital Stock are delivered to the
Lender together with a completed and executed stock transfer form (either
executed in blank or in the name of the Lender) or with an effective transfer
certificate, such Foreign Pledge Agreement shall constitute an equitable charge
on all right, title and interest of the pledgor thereunder in such collateral,
as security for the Obligations, prior and superior to the Lien or right of any
other Person.
Section 4.19. No Misrepresentation
---------------------
No certificate or report from time to time furnished by any of
the Loan Parties in connection with the Transactions contains or will contain a
misstatement of material fact, or omits or will omit to state a material fact
required to be stated in order to make the statements therein contained not
misleading in the light of the circumstances under which made, provided that any
projections or pro-forma financial information contained therein are based upon
good faith estimates and assumptions believed by the Borrower to be reasonable
at the time made, it being recognized by the Lender that such projections as to
future events are not to be viewed as facts, and that actual results during the
period or periods covered thereby may differ from the projected results.
ARTICLE 5. CONDITIONS
Section 5.1. Restatement Date
----------------
The obligations of the Lender to make Loans hereunder shall
not become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.1):
(a) The Lender shall have received a certificate, dated the
Restatement Date, of the Secretary or Assistant Secretary or other analogous
counterpart of each Loan Party:
(i) attaching a true and complete copy of the
resolutions of its Managing Person and of all other documents
evidencing all necessary corporate, partnership or other action (in
form and substance satisfactory to the Lender) taken to authorize the
Loan Documents to which it is a party and the transactions
contemplated thereby;
(ii) attaching a true and complete copy of its
Organizational Documents;
35
(iii) setting forth the incumbency of its officer or
officers (or other analogous counterpart) who may sign the Loan
Documents, including therein a signature specimen of such officer or
officers (or other analogous counterpart); and
(iv) attaching a certificate of good standing of the
Secretary of State of the jurisdiction of its formation and of each
other jurisdiction in which it is qualified to do business.
(b) The Lender (or Special Counsel) shall have received, in
respect of each Person listed on the signature pages of this Agreement, either
(i) a counterpart signature page hereof signed on behalf of such Person, or (ii)
written evidence satisfactory to the Lender (which may include a facsimile
transmission of a signed signature page of this Agreement) that a counterpart
signature page hereof has been signed on behalf of such Person.
(c) The Lender shall have received the Note, dated the
Restatement Date, duly executed by a duly authorized officer of the Borrower.
(d) The Lender shall have received a favorable opinion of
Lowenstein, Sandler PC, special counsel to the Loan Parties, addressed to the
Lender, dated the Restatement Date, and in form and substance satisfactory to
the Lender.
(e) The Lender (or Special Counsel) shall have received a
counterpart of the Security Agreement, dated the date hereof, signed by the
Borrower and each other Loan Party thereto (or a facsimile of a signature page
thereof signed by the Borrower) together with the following:
(i) any certificated securities representing shares
of Capital Stock or other similar interests owned by or on behalf of
any Loan Party constituting Collateral as of the Restatement Date
after giving effect to the Transactions (to the extent not heretofore
delivered to the Lender or subject to the provisions of Section 6.12);
(ii) any promissory notes and other instruments
evidencing all loans, advances and other debt owed or owing to any
Loan Party constituting Collateral as of the Restatement Date after
giving effect to the Transactions;
(iii) stock powers and instruments of transfer,
endorsed in blank, with respect to such certificated securities,
promissory notes and other instruments;
(iv) all instruments and other documents, including
UCC financing statements or amendments thereto, required by law or
reasonably requested by the Lender to be filed, registered or recorded
to create or perfect the Liens intended to be created under the
Security Agreement; and
36
(v) results of a search of the UCC (or equivalent)
filings made and tax and judgment lien searches with respect to the
Loan Parties in the jurisdictions contemplated by the Security
Agreement and copies of the financing statements (or similar
documents) disclosed by such search and evidence reasonably
satisfactory to the Lender that the Liens indicated by such financing
statements (or similar documents) are permitted by Section 7.2 or have
been released.
(f) PC Acquisition.
(i) Each of the conditions precedent contained in
the PC Acquisition Documents to the consummation of the PC Acquisition
shall have been satisfied (with no waiver of any condition thereof
without the prior written consent of the Lender), and the PC
Acquisition shall have been consummated in accordance with the terms
of the PC Acquisition Documents (with no amendment, supplement or
other modification to any term or provision contained therein without
the prior written consent of the Lender) and all applicable laws,
governmental policies, rules and regulations.
(ii) The Lender shall have received a court
certified copy of the Approval Order, which shall be a Final Order and
shall be satisfactory to the Lender.
(iii) The Lender shall have received a certificate,
dated the Restatement Date and signed on the Borrower's behalf by the
president, any vice president or other executive officer of the
Borrower reasonably satisfactory to the Lender, (A) to each of the
foregoing effects and (B) attaching a true, complete and correct copy
of each PC Acquisition Document, which shall be in form and substance
satisfactory to the Lender.
(g) All approvals and consents of all Persons required to be
obtained in connection with the consummation of the Transactions have been
obtained, all required notices have been given and all required waiting periods
have expired and the Lender shall have received a certificate of an officer of
the Borrower to such effect.
(h) The Lender shall have received a certificate, signed by a
Financial Officer of the Borrower, in all respects reasonably satisfactory to
the Lender, dated the Restatement Date:
(i) certifying that on the Restatement Date and
after giving effect to the making of the Loans and the consummation of
the Transactions (i) no Default shall have occurred or be continuing
and (ii) the representations and warranties contained in the Loan
Documents are true and correct;
(ii) certifying that the Borrower is in compliance
with all covenants set forth in Section 7.14 on a pro-forma basis
after giving effect to the Transactions and attaching a copy of a
pro-forma consolidated balance sheet of the Borrower utilized for
purposes of preparing such Compliance Certificate,
37
which pro-forma consolidated balance sheet presents the Borrower's
good faith estimate of its pro-forma consolidated financial condition
at the date thereof, after giving effect to the Transactions; and
(iii) setting forth the Leverage Ratio on the
Restatement Date and after giving effect to the Transactions,
including calculations in reasonable detail, provided, however, for
purposes of calculating the Leverage Ratio, Consolidated EBITDA for
the four quarters ended December 31, 2002 shall be used.
(i) The Lender shall have received all fees and other amounts
due and payable to the Lender under the Loan Documents on or prior to the
Restatement Date, including, to the extent invoiced, reimbursement or payment of
the fees and disbursements of Special Counsel and all other out-of-pocket
expenses required to be reimbursed or paid by the Borrower hereunder.
(j) The Lender shall have received a Certificate of
Dissolution of Bel Hybrids and Magnetics, Inc. certified by the Secretary of
State of the State of Indiana.
(k) The Lender shall have received such other documents, each
in form and substance reasonably satisfactory to it, as it shall reasonably
request.
Section 5.2. Each Borrowing
--------------
The obligation of the Lender to make a Loan on the occasion of
any Borrowing is subject to the satisfaction of the following conditions:
(a) The representations and warranties of each Loan Party set
forth in each Loan Document shall be true and correct on and as of the date of
such Borrowing.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
(c) The Lender shall have received a Borrowing Request and
such other documentation and assurances as shall be reasonably required by it in
connection therewith.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
ARTICLE 6. AFFIRMATIVE COVENANTS
The Borrower agrees that (unless otherwise consented to in writing by
the Lender pursuant to Section 9.1) until the Commitments have expired or been
terminated and the principal of, and interest on the Loans, all Fees and all
other amounts payable under the Loan Documents shall have been paid in full:
38
Section 6.1. Financial Statements and Information
-------------------------------------
The Borrower shall furnish or cause to be furnished to the
Lender:
(a) within 90 days after the end of each fiscal year:
(i) a copy of the Borrower's Annual Report on Form
10-K in respect of such fiscal year, together with the financial
statements required to be attached thereto, which statements above
shall be audited and reported on by the Accountants (without (x) a
"going concern" or like qualification or exception, (y) any
qualification or exception as to the scope of such audit or (z) any
exception or qualification which relates to the treatment or
classification of any item and which, as a condition to the removal of
such qualification, would require an adjustment to such item, the
effect of which would be to cause the Borrower to be in default of any
of its obligations under Section 7.14 (each, an "Impermissible
Qualification")) to the effect that such consolidated financial
statements present fairly in all material respects the financial
condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with
GAAP consistently applied; and
(ii) a copy of its unaudited consolidating balance
sheet and related unaudited statements of income, stockholders' equity
and cash flows as of the end of and for such year, setting forth in
each case in comparative form the figures for the previous fiscal
year, all certified by one of its Financial Officers as presenting
fairly in all material respects the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a
consolidating basis in accordance with GAAP consistently applied,
subject to the absence of footnotes, together with a schedule of other
financial information consisting of consolidating or combining details
in columnar form with such consolidating Subsidiaries separately
identified, in accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year:
(i) a copy of the Borrower's Quarterly Report on
Form 10-Q in respect of such fiscal quarter, together with the
financial statements required to be attached thereto; and
(ii) a copy of its unaudited consolidating balance
sheet and related unaudited statements of income, and cash flows as of
the end of and for such fiscal quarter and the then elapsed portion of
such fiscal year, setting forth in each case in comparative form the
figures for the corresponding period or periods of (or, in the case of
the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all
material respects the financial condition and results of operations of
the Borrower and its consolidated Subsidiaries on a consolidating
basis in accordance with GAAP consistently applied, subject to normal
year-end audit adjustments and the
40
absence of footnotes, together with a schedule of other financial
information consisting of consolidating or combining details in
columnar form with such consolidating Subsidiaries separately
identified, in accordance with GAAP consistently applied;
(c) concurrently with any delivery of financial statements
under subsections (a) or (b) above, a certificate (a "Compliance Certificate")
signed by a Financial Officer of the Borrower, substantially in the form of
Exhibit D, (i) certifying as to whether a Default has occurred and, if so,
specifying the details thereof and any action taken or proposed to be taken with
respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 7.14, (iii) stating whether any change in
GAAP or in the application thereof has occurred since the date of the audited
financial statements referred to in Section 4.4 and, if any such change has
occurred, specifying the effect of such change on the financial statements
accompanying such Compliance Certificate, (iv) listing the Subsidiary Guarantors
as of the date of such Compliance Certificate, (v) either a certification that
there has been no change to the information disclosed in the Schedules to the
Security Agreement or, after the delivery of the first certification delivered
pursuant to this subsection, as previously certified, or, if so, specifying all
such changes, and certifying that all agreements, instruments, and other
documents have been executed and delivered, and all further action (including
the filing and recording of financing statements and other documents) has been
taken, that may be necessary to cause the Collateral to become subject to a
perfected Lien of the Lender under the applicable Loan Documents, with the
priority required thereby;
(d) concurrently with any delivery of financial statements
under subsections (a) or (b) above, a report of sales backlogs for major product
lines as of the end of the relevant quarterly or annual period;
(e) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the SEC or with any national securities
exchange, or distributed by the Borrower to its shareholders generally, as the
case may be; and
(f) promptly following any request therefor, such other
information regarding the Borrower or any Subsidiary, or compliance with the
terms of this Agreement, as the Lender may reasonably request.
Section 6.2. Notice of Material Events
-------------------------
The Borrower shall furnish to the Lender prompt written notice
of the following together with a statement of a Financial Officer or other
executive officer of the Borrower setting forth the details of the event or
development requiring such notice and, if applicable, any action taken or
proposed to be taken with respect thereto:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or
proceeding by or before any Governmental Authority against or affecting the
Borrower or any Subsidiary
40
that, if adversely determined, would in the good faith opinion of the Borrower
reasonably be expected to result in a Material Adverse effect;
(c) any lapse, refusal to renew or extend or other termination
of any material license, permit, franchise or other authorization issued to the
Borrower or any Subsidiary by any Person or Governmental Authority, which lapse,
refusal or termination, would reasonably be expected to result in a Material
Adverse effect;
(d) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, would reasonably be expected to
result in a Material Adverse effect; or
(e) the occurrence of any other development that has or would
reasonably be expected to result in, a Material Adverse effect.
Section 6.3. Existence; Conduct of Business
The Borrower shall, and shall cause each Subsidiary to, do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect (i) its legal existence (provided that the foregoing shall not
prohibit any merger, consolidation or dissolution not prohibited by Section
7.3), and (ii) all rights, licenses, permits, privileges and franchises the
absence of which would reasonably be expected to have a Material Adverse effect.
Section 6.4. Payment of Obligations
----------------------
The Borrower shall, and shall cause each Subsidiary to, pay
and discharge when due, its obligations, including obligations with respect to
Taxes, which, if unpaid, would reasonably be expected to result in a Material
Adverse effect, except where (i) the validity or amount thereof is being
contested in good faith by appropriate proceedings diligently conducted, (ii)
the Borrower or such Subsidiary has set aside on its books adequate reserves
with respect thereto in accordance with GAAP and (iii) the failure to make
payment pending such contest would not reasonably be expected to result in a
Material Adverse effect.
Section 6.5. Maintenance of Properties
-------------------------
The Borrower shall, and shall cause each Subsidiary to,
maintain, protect and keep in good repair, working order and condition (ordinary
wear and tear excepted) at all times, all of its property other than property,
the loss of which would not reasonably be expected to have a Material Adverse
effect.
Section 6.6. Insurance
---------
The Borrower shall, and shall cause each Subsidiary to,
maintain with financially sound and reputable insurance companies, in at least
such amounts and against at least such risks (but including in any event public
liability, product liability and business interruption coverage) as are usually
insured against in the same general area by
41
companies engaged in the same or a similar business, and furnish to the Lender,
upon written request, full information as to the insurance carried.
Section 6.7. Books and Records: Inspection Rights
------------------------------------
The Borrower shall, and shall cause each Subsidiary to, keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and activities
and, at all reasonable times upon reasonable prior notice, permit
representatives of the Lender to (i) visit the offices of the Borrower and each
Subsidiary, (ii) examine such books and records and Accountants' reports
relating thereto, (iii) make copies or extracts therefrom, (iv) discuss the
affairs of the Borrower and each such Subsidiary with the respective officers
thereof, (v) examine and inspect the property of the Borrower and each such
Subsidiary and (vi) meet and discuss the affairs of the Borrower and each such
Subsidiary with the Accountants.
Section 6.8. Compliance with Laws
---------------------
The Borrower shall, and shall cause each Subsidiary to, comply
with all laws, rules, regulations and orders of any Governmental Authority
applicable to it or its property, except where the failure to do so,
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse effect.
Section 6.9. Additional Subsidiaries
------------------------
In the event that on or after the Restatement Date, any Person
(other than the Excluded Subsidiaries) shall become a Domestic Subsidiary or any
Excluded Subsidiary shall cease to be an Excluded Subsidiary, the Borrower shall
(i) notify the Lender in writing thereof within three Business Days thereof,
(ii) cause such Person to execute and deliver to the Lender a Guarantee
Supplement and to become a party to each applicable Security Document in the
manner provided therein within five Business Days thereafter and to promptly
take such actions to create and perfect Liens on such Person's assets to secure
such Person's obligations under the Loan Documents as the Lender shall
reasonably request, (iii) cause any shares of Capital Stock of such new Domestic
Subsidiary or such former Excluded Subsidiary owned by or on behalf of any Loan
Party to be pledged pursuant to the Security Agreement within five Business Days
thereafter, (iv) cause each such new Domestic Subsidiary or such former Excluded
Subsidiary to deliver to the Lender any shares of Capital Stock of any DOMESTIC
Subsidiary owned by or on behalf of such new Domestic Subsidiary within five
Business Days after such Subsidiary is formed or acquired or ceases to be an
Excluded Subsidiary and (v) cause each such Domestic Subsidiary or such former
Excluded Subsidiary which owns Capital Stock in a Material Foreign Subsidiary,
to enter into a Foreign Pledge Agreement with respect thereto within 30 days of
the acquisition thereof or the relevant Foreign Subsidiary becoming a Material
Foreign Subsidiary and to take such other actions as may be required by the
Lender in order that the Lender have a first priority security interest in not
less than 65% of the Capital Stock thereof; (iv) deliver to the Lender such
additional financing statements, certificates, instruments and opinions
(including opinions of foreign counsel) as the Lender may request.
42
Section 6.10. Additional Collateral
---------------------
If after the Restatement Date, the Borrower or any other Loan
Party acquires any property which would constitute Collateral, the Borrower
shall, and shall cause each such Loan Party to, execute any and all documents,
financing statements, agreements and instruments, and take all such further
actions (including the filing and recording of financing statements, and other
documents), that may be required under any applicable law, or which the Lender
may reasonably request, to effectuate the Transactions or to grant, preserve,
protect or perfect the Liens created or intended to be created by the Security
Documents or the validity or priority of any such Lien, all at the expense of
the Loan Parties.
Section 6.11. Maintenance of Licenses
-----------------------
The Borrower shall do, and cause each Subsidiary to do, all
things necessary, to renew, extend and continue in effect all permits, licenses
and authorizations which may at any time and from time to time be necessary to
operate the business of the Borrower and the Subsidiaries in compliance with all
applicable laws and regulations, the failure to comply with which would
reasonably be expected to have a Material Adverse effect.
Section 6.12. Pledge of Stock in Material Foreign Subsidiaries
No later than the 60th day after the Restatement Date, the
Borrower shall execute and deliver, and cause each applicable Subsidiary
Guarantor to execute and deliver, Foreign Pledge Agreements with respect to not
less than 65% of the Capital Stock of each Person that was a Material Foreign
Subsidiary on the Restatement Date and deliver together with each such Foreign
Pledge Agreement certificates evidencing the pledged Capital Stock with
appropriate instruments of transfer, an opinion of foreign counsel to the
Borrower or such Subsidiary Guarantor, in form and substance satisfactory to the
Lender, and such other documents, certificates and instruments as the Lender
shall request.
ARTICLE 7. NEGATIVE COVENANTS
The Borrower agrees that (unless otherwise consented to in writing by
the Lender pursuant to Section 9.1) until the Commitments have expired or been
terminated and the principal of, and interest on the Loans, all Fees and all
other amounts payable under the Loan Documents shall have been paid in full:
Section 7.1. Indebtedness
------------
The Borrower shall not, and shall not permit any Subsidiary
to, create, incur, assume or suffer to exist any liability for Indebtedness,
except:
(a) Indebtedness under the Loan Documents;
43
(b) Indebtedness of the Borrower or any Subsidiary existing on
the Restatement Date as set forth on Schedule 7.1, and any extensions, renewals
and replacements of any such Indebtedness that do not increase the outstanding
principal amount thereof;
(c) Indebtedness of the Borrower to any Subsidiary or of any
Subsidiary to the Borrower or any other Subsidiary (other than an Excluded
Subsidiary), provided that:
(i) all Indebtedness of the Borrower or any
Subsidiary Guarantor to any Non-Guarantor Subsidiary shall be
subordinated in a manner in all respects acceptable to the Lender,
which acceptance shall not be unreasonably withheld, and
(ii) immediately after giving effect to any
Indebtedness of any Non-Guarantor Subsidiary to the Borrower or any
Subsidiary Guarantor, the sum of, without duplication, the following
(at any time, the "Intercompany Transaction Amount") shall not exceed
$250,000: (A) the aggregate outstanding principal balance of all such
Indebtedness permitted by Section 7.1(c), plus (B) the aggregate
amount of all Guarantees of the Borrower or any Subsidiary Guarantor
permitted by Section 7.1(d) in respect of Indebtedness of any
Non-Guarantor Subsidiary, plus (C) the aggregate fair market value of
all consideration paid by the Borrower or any Subsidiary Guarantor on
or after the Restatement Date to any Non-Guarantor Subsidiary in
connection with any one or more of the following: (1) each sale,
assignment, lease, transfer or other disposition permitted by Section
7.6(iv) (including each merger permitted by Section 7.3(b) which shall
be treated as such), (2) each Acquisition permitted by Section 7.5(b)
(including each merger permitted by Section 7.3(b) which shall be
treated as such), (3) each Investment permitted by Section 7.4(c), and
(4) each Restricted Payment permitted by Section 7.7;
(d) Guarantees of the Borrower in respect of Indebtedness of
any Subsidiary and Guarantees of any Subsidiary in respect of Indebtedness of
the Borrower or any other Subsidiary in each case to the extent such
Indebtedness is permitted by this Section 8.1, provided that, with respect to
Guarantees of the Borrower or any Subsidiary Guarantor in respect of
Indebtedness of any Non-Guarantor Subsidiary, (i) such Guarantees shall be
subordinated in a manner in all respects acceptable to the Lender, which
acceptance shall not be unreasonably withheld, and (ii) immediately after giving
effect thereto, the Intercompany Transaction Amount shall not exceed $250,000;
and
(e) Indebtedness of (i) the Hong Kong Subsidiary in respect of
an unsecured line of credit in an amount not to exceed $2,000,000, (ii)
Indebtedness of the Borrower under lines of credit extended by Trust Company of
New Jersey in an amount not in excess of $1,000,000, and (iii) without
duplication, the Borrower's Guarantee of each thereof.
44
Section 7.2. Negative Pledge
---------------
The Borrower shall not, and shall not permit any Subsidiary to,
create, incur, assume or suffer to exist any Lien upon any of its property,
whether now owned or hereafter acquired, or assign or sell any income or
revenues (including accounts receivable) or rights in respect of any thereof,
except for the following (collectively, "Permitted Liens"):
(a) any Customary Lien;
(b) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the Restatement Date and set forth on Schedule 7.2,
provided that (i) such Lien shall not apply to any property or asset of the
Borrower or any Subsidiary other than the property and assets referred to in
Schedule 7.2 and (ii) such Lien shall secure only those obligations which it
secures on the Restatement Date and extensions, renewals and replacements
thereof that do not increase the outstanding principal amount thereof; and
(c) Liens securing Capital Lease Obligations and Liens on
property (including, in the event such property constitutes Capital Stock of a
newly acquired Subsidiary, Liens on the property of such Subsidiary) acquired
after the Restatement Date and either existing on such property when acquired,
or created contemporaneously with such acquisition, to secure the payment or
financing of the purchase price thereof, provided that such Liens attach only to
the property so purchased or acquired and, provided further, that the
Indebtedness secured by such Liens is permitted by Section 7.1(f).
Section 7.3. Fundamental Changes
-------------------
The Borrower shall not, and shall not permit any Subsidiary, to
consolidate or merge into or with any other Person, or permit any other Person
to merge into or consolidate with it or any of the Subsidiaries, or sell,
transfer, lease or otherwise dispose of (in one transaction or in a series of
transactions) all or substantially all of its assets, or all or substantially
all of any class of the Capital Stock of any of the Subsidiaries (in each case,
whether now owned or hereafter acquired), or liquidate or dissolve, or permit
any Subsidiaries to do any of the foregoing, except that, so long as immediately
before and after giving effect thereto, no Default shall or would exist:
(a) any Non-Guarantor Subsidiary may merge with any other
Non-Guarantor Subsidiary;
(b) any Non-Guarantor Subsidiary may merge with any Subsidiary
Guarantor, and any Subsidiary Guarantor may merge with any Non-Guarantor
Subsidiary, provided that, (i) immediately after giving effect to any such
merger in which such Subsidiary Guarantor is the survivor, the Intercompany
Transaction Amount shall not exceed $250,000, and such merger shall be treated
as an Acquisition for all purposes of Section 7.5(b) or 7.5(c), as the case may
be, and (ii) with respect to any merger in
45
which such Subsidiary Guarantor is not the survivor, such merger shall be
treated as a sale, assignment, transfer or other disposition for all purposes of
Section 7.6(iv);
(c) the Borrower and any Subsidiary may make any sale,
assignment, transfer or other disposition permitted by Section 7.6(iv); and
(d) any Non-Guarantor Subsidiary may liquidate or dissolve if the
Borrower determines in good faith that such liquidation or dissolution is in the
best interests of the Borrower and is not materially disadvantageous to the
Lender.
Section 7.4. Investments, Loans, Advances and Guarantees
-------------------------------------------
The Borrower shall not, and shall not permit any Subsidiary to,
at any time, purchase or otherwise acquire (including pursuant to any merger
with any Person that was not a Wholly Owned Subsidiary of the Borrower prior to
such merger), hold or invest in any Capital Stock, evidences of indebtedness or
other securities (including any option, warrant or other right to acquire any of
the foregoing and any derivative product) of, make or permit to exist any loans
to or advances on behalf of, incur any Guarantees in respect of any obligations
of, or make or permit to exist any investment or any other interest in, any
other Person (all of which are sometimes referred to herein as "Investments"),
except:
(a) Investments in Cash Equivalents and in normal business
banking accounts or issued by federally insured institutions in amounts not
exceeding the limits of such insurance;
(b) Investments existing on the Restatement Date as set forth on
Schedule 7.4;
(c) Investments by the Borrower in any Subsidiary and Investments
by any Subsidiary in the Borrower or any other Subsidiary, provided that (i) the
proceeds of such Investment in the Borrower or any Subsidiary Guarantor shall be
received by the Borrower or such Subsidiary Guarantor, as the case may be, and
(ii) immediately after giving effect to each Investment by the Borrower or any
Subsidiary Guarantor in any Non-Guarantor Subsidiary, the Intercompany
Transaction Amount shall not exceed $250,000;
(d) Acquisitions permitted by Section 7.5;
(e) Investments in marketable securities (other than Cash
Equivalents) in an amount not in excess of $50,000 in the aggregate;
(f) Guarantees permitted by Section 7.1 and Secured Hedging
Agreements permitted by Section 7.8; and
(g) Unconsolidated Investments made on or after the Restatement
Date, provided that, (i) immediately before and after giving effect thereto, no
Default shall or would exist, (ii) immediately after giving effect thereto, all
of the representations
46
and warranties contained in the Loan Documents shall be true and correct with
the same effect as though then made, (iii) the Person in which such
Unconsolidated Investment is made is engaged in the Line of Business, and (iv)
the aggregate amount of all such Unconsolidated Investments does not exceed an
amount (not less than zero) equal to $10,000,000 minus the Acquisition
Consideration paid by the Borrower or any Subsidiary in respect of all
Acquisitions made on or after the Restatement Date and on or before the date of
the making of such Unconsolidated Investment.
Section 7.5. Acquisitions
------------
The Borrower shall not, and shall not permit any Subsidiary to,
at any time, make any purchase or other acquisition (whether in a single
transaction or in a series of related transactions) of (i) any assets of any
other Person that, taken together, constitute a business unit, (ii) any Capital
Stock of any other Person if, immediately thereafter, such other Person would be
a Subsidiary of the Borrower, (iii) any assets of any other Person otherwise not
in the ordinary course of business, (iv) enter into any binding agreement to
perform any transaction described in clauses (i), (ii) or (iii) above which is
not contingent on obtaining the consent of the Lender (each transaction
described in clauses (i), (ii), (iii) and (iv) above being referred to as an
"Acquisition"), or (v) make any deposit in connection with any potential
Acquisition, except:
(a) Acquisitions of Investments permitted by Section 7.4;
(b) Acquisitions by the Borrower or any Subsidiary from any other
Subsidiary and Acquisitions by any Subsidiary from the Borrower or any other
Subsidiary, provided that, immediately after giving effect to any Acquisition
between a Loan Party, as purchaser, and a Non-Guarantor Subsidiary, as seller,
the Intercompany Transaction Amount shall not exceed $250,000;
(c) other Acquisitions, provided that the sum (the "Acquisition
Consideration") of (i) the cash consideration paid or agreed to be paid in
connection with all such Acquisitions, plus (ii) the fair market value of all
noncash consideration paid or agreed to be paid in connection with all such
Acquisitions, plus (iii) an amount equal to the principal or stated amount of
all liabilities assumed or incurred in connection therewith shall not exceed
$20,000,000 minus the amount expended in connection with the making of
Unconsolidated Investments on or after the Restatement Date and on or before the
date of the making of such Acquisition, provided further that the Acquisition
Consideration in respect of any Acquisition shall not exceed $10,000,000, and
provided further that:
(i) immediately before or after giving effect to each such
Acquisition, no Default shall or would exist, and immediately after
giving effect thereto, all of the representations and warranties
contained in the Loan Documents shall be true and correct with the same
effect as though then made,
(ii) the Person or business acquired is engaged in the Line
of Business,
47
(iii) the Borrower or Subsidiary Guarantor making the
Acquisition shall have complied with the provisions of Sections 6.9 and
6.10, and
(iv) the Borrower shall have delivered to the Lender (1)
notice thereof not less than ten days prior to the consummation of such
Acquisition, and (2) a certificate of a Financial Officer thereof, in
all respects reasonably satisfactory to the Lender and dated the date
of such consummation, certifying that no Default has occurred and is
continuing, and setting forth reasonably detailed calculations
demonstrating compliance with Section 7.14 on a pro-forma basis (after
giving effect to such Acquisition and based on the most recent
financial statements delivered pursuant to Section 6.1) and such other
information, documents and other items as the Lender shall have
reasonably requested; and
(d) Subject to the conditions set forth in Section 5.1, the PC
Acquisition.
Section 7.6. Dispositions
------------
The Borrower shall not, and shall not permit any Subsidiary to,
sell, assign, lease, transfer or otherwise dispose of any property or assets,
except: (i) sales of inventory in the ordinary course of business, (ii) sales,
assignments, transfers or other dispositions of any property or assets that, in
the reasonable opinion of the Borrower or such Subsidiary, as the case may be,
are obsolete or no longer useful in the conduct of its business, (iii) sales or
other dispositions of Cash Equivalents and Investments permitted by Section
7.4(e); and (iv) sales, assignments, transfers or other dispositions of any
property or assets by the Borrower to any Subsidiary or by any Subsidiary to the
Borrower or any other Subsidiary, provided that, immediately after giving effect
to any such transaction between a Loan Party and a Non-Guarantor Subsidiary, the
Intercompany Transaction Amount shall not exceed $250,000.
Section 7.7. Restricted Payments
-------------------
The Borrower shall not, and shall not permit any Subsidiary to,
declare, pay or make any dividend or other distribution, direct or indirect, on
account of any Capital Stock issued by such Person now or hereafter outstanding
(other than a dividend payable solely in shares or other units of Capital Stock
of such Person) or any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition, direct or indirect, of any shares of any class of
its Capital Stock now or hereafter outstanding (collectively, "Restricted
Payments"), except:
(a) Restricted Payments made by any Subsidiary to the Borrower or
other Subsidiary, provided that, (i) immediately before and after giving effect
thereto, no Default shall or would exist, and (ii) in the case of a Restricted
Payment made by a Loan Party to a Non-Guarantor Subsidiary, immediately after
giving effect thereto, the Intercompany Transaction Amount shall not exceed
$250,000; and
48
(b) repurchases of Capital Stock of the Borrower from
participants or beneficiaries of qualified employee benefit plans in the
ordinary course of the operation of such plans, provided that immediately before
and after giving effect thereto, no Default shall or would exist.
Section 7.8. Hedging Agreements
------------------
The Borrower shall not, and shall not permit any Subsidiary to,
enter into any Hedging Agreements, other than Hedging Agreements entered into in
the ordinary course of business to hedge or mitigate risks to which the Borrower
or any Subsidiary is exposed in the conduct of its business or the management of
its liabilities.
Section 7.9. Sale and Lease-Back Transactions
--------------------------------
The Borrower shall not, and shall not permit any Subsidiary to,
enter into an arrangement with any Person or group of Persons providing for the
renting or leasing by the Borrower or any Subsidiary of any property or asset
which has been or is to be sold or transferred by the Borrower or any Subsidiary
to any such Person.
Section 7.10. Lines of Business
-----------------
The Borrower shall not, and shall not permit any Subsidiary to,
engage in any business other than the Line of Business.
Section 7.11. Transactions with Affiliates
----------------------------
The Borrower shall not, and shall not permit any Subsidiary to,
become a party to any transaction with an Affiliate, unless the Borrower's or
such Subsidiary's Managing Person shall have determined that the terms and
conditions relating thereto are as favorable to the Borrower or such Subsidiary
as those which would be obtainable at the time in a comparable arms-length
transaction with a Person other than an Affiliate.
Section 7.12. Use of Proceeds
---------------
The Borrower shall not use the proceeds of the Loans for any
purpose other than to (i) pay all of the Fees due hereunder, (ii) pay the
reasonable out-of-pocket fees and expenses incurred by the Borrower in
connection with the Loan Documents, (iii) for the Borrower's general corporate
purposes not inconsistent with the provisions hereof and (iv) with respect to
the proceeds of the Term Loan, to finance the PC Acquisition, provided, however,
that no part of such proceeds will be used, directly or indirectly, (x) for a
purpose which violates any law, including the provisions of Regulation T, U or X
or (y) to fund a personal loan to or for the benefit of a director or executive
officer of a Borrower or any Subsidiary.
Section 7.13. Restrictive Agreements
----------------------
The Borrower shall not, and shall not permit any Subsidiary to,
directly or indirectly, enter into, incur or permit to exist any agreement or
other arrangement that
49
prohibits, restricts or imposes any condition upon (i) the ability of the
Borrower or any such Subsidiary to create, incur or permit to exist any Lien
upon any of its property or assets, or (ii) the ability of any such Subsidiary
to pay dividends or other distributions with respect to any shares of its
Capital Stock or to make or repay loans or advances to the Borrower or any other
Subsidiary of the Borrower or to Guarantee Indebtedness of the Borrower or any
other Subsidiary of the Borrower, provided that the foregoing shall not apply to
restrictions and conditions imposed by applicable law or by the Loan Documents.
Section 7.14. Financial Covenants
-------------------
(a) Liquidity Ratio. The Borrower shall not permit the Liquidity
Ratio to be less than 1.00:1.00 at any time.
(b) Minimum Consolidated Tangible Net Worth. The Borrower shall
not permit Consolidated Tangible Net Worth to be less than, as of the last day
of any fiscal quarter, an amount equal to $117,203,000 plus the sum for each
fiscal quarter ending after the Restatement Date of 50% of the net income, if
positive, of the Borrower and its Subsidiaries on a consolidated basis for each
such fiscal quarter plus an amount equal to 75% of the net proceeds of any
issuance of equity by the Borrower.
(c) Fixed Charge Ratio. The Borrower shall not permit the Fixed
Charge Ratio as of the last day of any fiscal quarter to be less than 1.25:1.00.
(d) Leverage Ratio. The Borrower shall maintain at all times a
Leverage Ratio of less than or equal to 2.50:1.00.
Section 7.15. Excluded Subsidiaries
---------------------
The Borrower shall not permit any Excluded Subsidiary (other than
Bel Delaware LLC referred to in clause (i) of the definition thereof) to engage
in the active conduct of a trade or business or hold any assets (other than
immaterial assets).
ARTICLE 8. DEFAULTS
--------
Section 8.1. Events of Default
-----------------
The following shall each constitute an "Event of Default"
hereunder:
(a) the failure of the Borrower to make any payment of principal
on the Loans when due and payable; or
(b) the failure of the Borrower to make any payment of interest,
Fees, expenses or other amounts payable under any Loan Document or otherwise to
the Lender with respect to the loan facilities established hereunder within
three Business Days of the date when due and payable; or
50
(c) the failure of the Borrower to observe or perform any
covenant or agreement contained in Section 6.3(i), 6.9, 6.10, 6.12 or Article 7;
or
(d) the failure of any Loan Party to observe or perform any other
term, covenant, or agreement contained in any Loan Document to which it is a
party and such failure shall have continued unremedied for a period of 30 days
after such Loan Party shall have obtained knowledge thereof; or
(e) any representation or warranty made by the Borrower or any
Subsidiary (or by an officer thereof on its behalf) in any Loan Document or in
any certificate, report, opinion (other than an opinion of counsel) or other
document delivered or to be delivered pursuant thereto, shall prove to have been
incorrect or misleading (whether because of misstatement or omission) in any
material respect when made; or
(f) the failure of the Borrower to make any payment when due or
within any grace period, or the failure of the Borrower or any Subsidiary to
make any payment (whether of principal or interest and regardless of amount) in
respect of Material Liabilities when due or within any grace period for the
payment thereof; or
(g) any event or condition occurs that results in any Material
Liability becoming or being declared to be due and payable prior to the
scheduled maturity thereof, or that enables or permits (with or without the
giving of notice, the lapse of time or both) the holder or holders of any
Material Liability or any trustee or agent on its or their behalf to cause any
Material Liability to be due and payable, or to require the prepayment,
repurchase, redemption or defeasance thereof, in each case prior to the
scheduled maturity thereof (in each case after giving effect to any applicable
grace period), provided that this clause (g) shall not apply to secured
Indebtedness that becomes due as a result of the voluntary sale or transfer of
the properly or assets securing such Indebtedness; or
(h) the Borrower or any Material Subsidiary shall (i) suspend or
discontinue its business (except to the extent permitted by Section 6.3), (ii)
make an assignment for the benefit of creditors, (iii) generally not be paying
its debts as such debts become due, (iv) admit in writing its inability to pay
its debts as they become due, (v) file a voluntary petition in bankruptcy, (vi)
become insolvent (however such insolvency shall be evidenced), (vii) file any
petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment of debt, liquidation or dissolution or similar relief
under any present or future statute, law or regulation of any jurisdiction,
(viii) petition or apply to any tribunal for any receiver, custodian or any
trustee for any substantial part of its property, (ix) be the subject of any
such proceeding filed against it which remains undismissed for a period of 45
days, (x) file any answer admitting or not contesting the material allegations
of any such petition filed against it or any order, judgment or decree approving
such petition in any such proceeding, (xi) seek, approve, consent to, or
acquiesce in any such proceeding, or in the appointment of any trustee,
receiver, sequestrator, custodian, liquidator, or fiscal agent for it, or any
substantial part of its property, or an order is entered appointing any such
trustee, receiver, custodian, liquidator or fiscal agent and such order remains
in effect for 45 days, or (xii) take any
51
formal action for the purpose of effecting any of the foregoing or looking to
the liquidation or dissolution of the Borrower or such Material Subsidiary; or
(i) an (i) order or decree is entered by a court having
jurisdiction (A) adjudging the Borrower or any Material Subsidiary bankrupt or
insolvent, (B) approving as properly filed a petition seeking reorganization,
liquidation, arrangement, adjustment or composition of or in respect of the
Borrower or any Material Subsidiary under the bankruptcy or insolvency laws of
any jurisdiction, (C) appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of the Borrower or any
Material Subsidiary or of any substantial part of the property of any thereof,
or (D) ordering the winding up or liquidation of the affairs of the Borrower or
any Material Subsidiary, and any such decree or order continues unstayed and in
effect for a period of 45 days or (ii) order for relief against the Borrower or
any Material Subsidiary is entered under the bankruptcy or insolvency laws of
any jurisdiction; or
(j) judgments or decrees against the Borrower or any Subsidiary
aggregating in excess of $100,000 (unless adequately insured by a solvent
unaffiliated insurance company which has acknowledged coverage) shall remain
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of 30 days; or
(k) any Loan Document shall cease, for any reason, to be in full
force and effect (other than in accordance with its terms), or any Loan Party
shall so assert in writing or shall disavow any of its obligations thereunder;
or
(l) any Lien purported to be created under any Security Document
shall cease to be, or shall be asserted by any Loan Party not to be, a valid and
perfected Lien on, and security interest in, any Collateral, with the priority
required by the applicable Security Document; or
(m) an ERISA Event shall have occurred that, in the opinion of
the Lender, when taken together with all other ERISA Events that have occurred,
would reasonably be expected to result in liability of the Borrower and the
Subsidiaries which would, individually or in the aggregate, have a Material
Adverse effect; or
(n) the occurrence of a Change of Control.
Section 8.2. Contract Remedies
-----------------
(a) Upon the occurrence of an Event of Default or at any time
thereafter during the continuance thereof,
(i) in the case of an Event of Default specified in Section
8.1(h) or 8.1(i), without declaration or notice to the Borrower, the
Loans, all accrued and unpaid interest thereon and all other amounts
owing under the Loan Documents shall immediately become due and
payable, and
(ii) in all other cases the Lender may, by notice to the
Borrower, declare the Loans, all accrued and unpaid interest thereon
and all other
52
amounts owing under the Loan Documents to be due and payable forthwith,
whereupon the same shall immediately become due and payable.
In the event that the Loans, all accrued and unpaid interest thereon and all
other amounts owing under the Loan Documents shall have been declared due and
payable pursuant to the provisions of this Section 8.2, the Lender may (A)
proceed to enforce its rights under the Loan Documents by suit in equity, action
at law and/or other appropriate proceedings, whether for payment or the specific
performance of any covenant or agreement contained in the Loan Documents and (B)
exercise any and all rights and remedies provided to the Lender by the Loan
Documents. Except as otherwise expressly provided in the Loan Documents, the
Borrower expressly waives presentment, demand, protest and all other notices of
any kind in connection with the Loan Documents. The Borrower hereby further
expressly waives and covenants not to assert any appraisement, valuation, stay,
extension, redemption or similar laws, now or at any time hereafter in force
which might delay, prevent or otherwise impede the performance or enforcement of
any Loan Document.
(b) In the event that the Loans, all accrued and unpaid interest
thereon and all other amounts owing under the Loan Documents shall have been
declared due and payable pursuant to the provisions of this Section 8.2, any
funds received by the Lender from or on behalf of the Borrower shall be remitted
to, and applied by, the Lender in the following manner and order:
(i) first, to reimburse the Lender for any expenses due from
the Borrower pursuant to the provisions of Section 9.4,
(ii) second, to the payment of the Fees due and owing the
Lender,
(iii) third, to the payment of any other fees, expenses or
other amounts (other than the principal of and interest on the Loans)
payable by the Loan Parties to the Lender under the Loan Documents,
(iv) fourth, to the payment of interest due on the Loans,
(v) fifth, to the payment to the Lender of the unpaid
principal amount of the Loans and each amount then due and payable
under each Secured Hedging Agreement, and
(vi) sixth, any remaining funds shall be paid to the Borrower
or as a court of competent jurisdiction shall direct.
ARTICLE 9. OTHER PROVISIONS
----------------
Section 9.1. Amendments and Waivers
----------------------
Notwithstanding anything to the contrary contained in any Loan
Document, the Lender and the appropriate parties to the Loan Documents may from
time
53
to time enter into written amendments, supplements or modifications thereof, and
the Lender may execute and deliver to any such parties a written instrument
waiving or consenting to the departure from, on such terms and conditions as the
Lender may specify in such instrument, any of the requirements of the Loan
Documents or any Default or Event of Default and its consequences. Any such
amendment, supplement, modification, waiver or consent shall be binding upon the
parties to the applicable agreement, the Lender and all future holders of the
Loans. In the case of any waiver, the parties to the applicable agreement and
the Lender shall be restored to their former position and rights hereunder and
under the Loan Documents, and any Default waived shall not extend to any
subsequent or other Default, or impair any right consequent thereon.
Section 9.2. Notices
-------
All notices, requests and demands to or upon the respective
parties to the Loan Documents to be effective shall be in writing and, unless
otherwise expressly provided therein, shall be deemed to have been duly given or
made when delivered by hand, one Business Day after having been sent by
overnight courier service, two Business Days after having been deposited in the
mail, first-class postage prepaid, or, in the case of notice by facsimile, when
sent, to the last address (including telephone and facsimile numbers) for such
party specified by such party in a written notice delivered to the Lender and
the Borrower or, if no such written notice was so delivered, as follows:
(a) in the case of any Loan Party, to such Loan Party c/o Bel
Fuse Inc., 206 Van Vorst Street, Jersey City, NJ 07302; Attention:
Colin Dunn, Vice President-Finance, Telephone: (201) 432-0463;
Facsimile (201) 432-9542; and
(b) in the case of the Lender, to The Bank of New York, 385 Rifle
Camp Road, West Paterson, NJ 07424; Attention: Thomas Sweeney, Vice
President; Telephone: (973) 357-7753, Facsimile (973) 357-7705;
provided, however, that any notice, request or demand by the Borrower pursuant
to Sections 2.2 or 3.3 shall not be effective until received. Any party to a
Loan Document may rely on signatures of the parties thereto which are
transmitted by facsimile or other electronic means as fully as if originally
signed.
Section 9.3. Survival
--------
All covenants, agreements, representations and warranties made by
the Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of the Loans, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder.
54
Section 9.4. Expenses; Indemnity
-------------------
(a) The Borrower agrees, on demand therefor and whether the Loans
are made to pay or reimburse the Lender (i) for all reasonable out-of-pocket
expenses incurred thereby, including the reasonable fees, charges and
disbursements of counsel, in connection with the development, preparation,
execution and administration of, the Loan Documents (including any amendment,
supplement or other modification thereto (whether or not executed or
effective)), any documents prepared in connection therewith and the consummation
of the transactions contemplated thereby and (ii) for all of its costs and
expenses, including reasonable fees and disbursements of counsel, incurred in
connection with (A) the protection or enforcement of its rights under the Loan
Documents, including any related collection proceedings and any negotiation,
restructuring or "work-out", and (B) the enforcement of this Section.
(b) The Borrower shall, on demand therefor, indemnify the Lender
and each of its Related Parties (each, an "Indemnified Person") against, and
hold each Indemnified Person harmless from, any and all losses, claims, damages,
penalties, liabilities and related expenses, including the fees, charges and
disbursements of any counsel, incurred by or asserted against any Indemnified
Person in connection with or in any way arising out of any Loan Document, any
other Transaction Document or any Transaction, including as a result of (i) any
breach by the Borrower of the terms of any Loan Document, the use of proceeds of
the Loans or any action or failure to act on the part of the Borrower, (ii) the
consummation or proposed consummation of the Transactions or any other
transactions contemplated hereby, (iii) the Loans or the use of the proceeds
therefrom, (iv) any actual or alleged presence or release of Hazardous Substance
on or from any property owned or operated by the Borrower or any of its
Subsidiaries, or any liability in respect of any Environmental Law related in
any way to the Borrower or any of its Subsidiaries, (v) any action or failure to
act on the part of the Borrower or (vi) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnified Person is a party thereto (collectively, the "Indemnified
Liabilities"), provided that such indemnity shall not, as to any Indemnified
Person, be available to the extent that such losses, claims, damages,
liabilities or related expenses resulted from the gross negligence or willful
misconduct of such Indemnified Person.
(c) To the extent permitted by applicable law, the Borrower shall
not assert, and hereby waives, any claim against any Indemnified Person for any
special, indirect, consequential or punitive damages (whether accrued and
whether known or suspected to exist in its favor) arising out of, in connection
with, or as a result of, the Loan Documents, the transactions contemplated
thereby or the Loans or the use of the proceeds thereof.
Section 9.5. Successors and Assigns
----------------------
(a) The Loan Documents shall be binding upon and inure to the
benefit of each of the parties thereto, all future holders of the Loans, and
their respective
55
successors and assigns, except that no Loan Party may assign, delegate or
transfer any of its rights or obligations under the Loan Documents (other than
in connection with a dissolution or a transaction involving a merger or
consolidation, in each case otherwise permitted by this Agreement) without the
prior written consent of the Lender.
(b) In addition to its rights under Section 9.5(d), the Lender
shall have the right to sell, assign, transfer or negotiate one hundred percent
of its rights and obligations under the Loan Documents to any subsidiary or
affiliate of the Lender or to any other bank, insurance company, financial
institution, pension fund, mutual fund or other similar fund, provided that (i)
unless the assignee is a subsidiary or affiliate of the Lender (in which case no
claims may be made by such assignee pursuant to Section 3.5, 3.6 or 3.7, in each
case except to the extent that the Lender would otherwise have the right to do
so), the Borrower shall have consented thereto in writing (which consent shall
not be unreasonably withheld or delayed and shall not be required upon the
occurrence and during the continuance of an Event of Default) and (ii) the
Lender and such assignee shall execute and deliver an assignment and acceptance
agreement and cause one photocopy thereof, as executed, to be delivered to the
Borrower. From and after the effective date specified in such assignment and
acceptance agreement, the assignee thereunder shall be a party hereto and shall,
for all purposes of this Agreement and the other Loan Documents, be deemed the
"Lender", and the assignor thereunder shall be released from its obligations
under this Agreement and the other Loan Documents.
(c) The Lender may grant participations in all or any part of its
rights under the Loan Documents to one or more Persons, provided that (i) the
Lender's obligations under this Agreement and the other Loan Documents shall
remain unchanged, (ii) the Lender shall remain solely responsible to the other
parties to this Agreement and the other Loan Documents for the performance of
such obligations, and (iii) the Borrower shall continue to deal solely and
directly with the Lender in connection with the Lender's rights and obligations
under this Agreement and the other Loan Documents. The Borrower agrees that each
participant shall be entitled to the benefits of Sections 3.5, 3.6 and 3.7 to
the same extent as if it were the Lender and had acquired its interest by
assignment pursuant to Section 9.5(b), provided, however, that (A) no
participant shall be entitled to receive any greater payment under such Sections
than the Lender would have been entitled to receive with respect to the
participation sold to such participant, unless the sale of the participation to
such participant is made with the Borrower's prior written consent, and (B) no
participant that is organized under the laws of any jurisdiction other than the
United States or any political subdivision thereof shall be entitled to the
benefits of Section 3.7, unless the Borrower is notified of the participation
sold to such participant and such participant agrees, for the benefit of the
Borrower, to comply with Section 3.7 as thought it were the Lender. To the
extent permitted by law, each participant also shall be entitled to the benefits
of Section 2.3(b) as though it were the Lender.
(d) The Lender may at any time or from time to time assign all or
any portion of its rights under the Loan Documents to a Federal Reserve Bank,
provided that any such assignment shall not release such assignor from its
obligations thereunder.
56
Section 9.6. Counterparts; Integration
-------------------------
Each Loan Document (other than the Note) may be executed by one
or more of the parties thereto on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
document. It shall not be necessary in making proof of any Loan Document to
produce or account for more than one counterpart signed by the party to be
charged. Delivery of an executed counterpart of a signature page of any Loan
Document by facsimile shall be effective as delivery of a manually executed
counterpart of such Loan Document. The Loan Documents and any separate letter
agreements between the Borrower and the Lender with respect to fees embody the
entire agreement and understanding among the Loan Parties and the Lender with
respect to the subject matter thereof and supersede all prior agreements and
understandings among the Loan Parties and the Lender with respect to the subject
matter thereof.
Section 9.7. Severability
------------
Every provision of the Loan Documents is intended to be
severable, and if any term or provision thereof shall be invalid, illegal or
unenforceable for any reason, the validity, legality and enforceability of the
remaining provisions thereof shall not be affected or impaired thereby, and any
invalidity, illegality or unenforceability in any jurisdiction shall not affect
the validity, legality or enforceability of any such term or provision in any
other jurisdiction.
Section 9.8. GOVERNING LAW
-------------
THE LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
Section 9.9. Jurisdiction; Service of Process
--------------------------------
Each party to a Loan Document hereby irrevocably submits to the
nonexclusive jurisdiction of any New York State or Federal court sitting in the
County of New York over any suit, action or proceeding arising out of or
relating to the Loan Documents. Each party to a Loan Document hereby irrevocably
waives, to the fullest extent permitted or not prohibited by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in such a court and any claim that any such suit,
action or proceeding brought in such a court has been brought in an inconvenient
forum. Each Loan Party hereby agrees that a final judgment in any such suit,
action or proceeding brought in such a court, after all appropriate appeals,
shall be conclusive and binding upon it and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Lender may otherwise
have to bring any action or proceeding relating to Loan Documents against the
Borrower or its properties in the courts of any jurisdiction. Each party to a
Loan Document hereby irrevocably
57
consents to service of process in the manner provided for notices in Section
9.2. Nothing in this Agreement will affect the right of any party to a Loan
Document to serve process in any other manner permitted by law.
Section 9.10. WAIVER OF TRIAL BY JURY
-----------------------
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY
OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 9.10.
Section 9.11. Savings Clause
--------------
(a) This Agreement is intended solely as an amendment of, and
contemporaneous restatement of, the terms and conditions of the Original Credit
Agreement, and this Agreement is not intended and should not be construed as in
any way extinguishing or terminating the Original Credit Agreement. The Security
Documents, each to the extent amended as provided herein, shall remain in full
force and effect and continue to secure the Obligations as set forth therein.
(b) Nothing in this Agreement shall affect the rights of the
Lender to payments for the period prior to the Restatement Date and such rights
shall continue to be governed by the provisions of the Original Credit
Agreement.
ARTICLE 10. SUBSIDIARY GUARANTEE
--------------------
The Subsidiary Guarantors agree that until the principal of, and
interest on, the Loans, all Fees and all other amounts payable under the Loan
Documents shall have been paid in full:
Section 10.1. Guarantee
---------
(a) Subject to Section 10.1(b), each Subsidiary Guarantor hereby
absolutely, irrevocably and unconditionally guarantees the full and prompt
payment when due (whether at stated maturity, by acceleration or otherwise) of
the Borrower Obligations. The agreements of each Subsidiary Guarantor under this
Article 10 constitute a guarantee of payment, and the Lender shall not have any
obligation to enforce any Loan Document or exercise any right or remedy with
respect to any collateral security thereunder by any action, including making or
perfecting any claim against any
58
Person or any collateral security for any of the Borrower Obligations prior to
being entitled to the benefits of this Agreement. The Lender may, at its option,
proceed against the Subsidiary Guarantors, or any one or more of them, in the
first instance, to enforce the Guarantor Obligations without first proceeding
against the Borrower or any other Person, and without first resorting to any
other rights or remedies, as the Lender may deem advisable. In furtherance
hereof, if the Lender is prevented by law from collecting or otherwise hindered
from collecting or otherwise enforcing any Borrower Obligation in accordance
with its terms, the Lender shall be entitled to receive hereunder from the
Subsidiary Guarantors after demand therefor, the sums that would have been
otherwise due had such collection or enforcement not been prevented or hindered.
(b) Notwithstanding anything to the contrary contained herein,
the maximum aggregate amount of the obligations of each Subsidiary Guarantor
hereunder shall not, as of any date of determination, exceed the lesser of (i)
the greatest amount that is valid and enforceable against such Subsidiary
Guarantor under principles of New York State contract law, and (ii) the greatest
amount that would not render such Subsidiary Guarantor's liability hereunder
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 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 excluding,
however, any liability (A) in respect of intercompany indebtedness to the
Borrower or any affiliate or subsidiary of the Borrower, to the extent that such
intercompany indebtedness would be discharged in an amount equal to the amount
paid by such Subsidiary Guarantor hereunder, and (B) under any guarantee of (1)
senior unsecured indebtedness, or (2) indebtedness subordinated in right of
payment to any Borrower Obligation, in either case that contains a limitation as
to maximum liability similar to that set forth in this Section 10.1(b) and
pursuant to which the liability of such Subsidiary Guarantor hereunder is
included in the liabilities taken into account in determining such maximum
liability) 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, contribution, reimbursement, indemnity or similar rights of such
Subsidiary Guarantor pursuant to applicable law or any agreement providing for
an equitable allocation among such Subsidiary Guarantor and other affiliates or
subsidiaries of the Borrower of obligations arising under guarantees by such
parties.
(c) Each Subsidiary Guarantor agrees that the Guarantor
Obligations may at any time and from time to time exceed the maximum aggregate
amount of the obligations of such Subsidiary Guarantor hereunder without
impairing this Agreement or affecting the rights and remedies of the Lender
hereunder.
Section 10.2. Absolute Obligation
-------------------
Subject to Section 10.5(c), no Subsidiary Guarantor shall be
released from liability hereunder unless and until either (i) the Borrower shall
have paid in full the outstanding principal balance of the Loans, together with
all accrued and unpaid interest thereon, and all other amounts then due and
owing under the Loan Documents, or (ii) the
59
Guarantor Obligations of such Subsidiary Guarantor shall have been paid in full
in cash. Each Subsidiary Guarantor acknowledges and agrees that (a) the Lender
has not made any representation or warranty to such Subsidiary Guarantor with
respect to the Borrower, any of its Subsidiaries, any Loan Document, or any
agreement, instrument or document executed or delivered in connection therewith,
or any other matter whatsoever, and (b) such Subsidiary Guarantor shall be
liable hereunder, and such liability shall not be affected or impaired,
irrespective of (A) the validity or enforceability of any Loan Document, or any
agreement, instrument or document executed or delivered in connection therewith,
or the collectability of any of the Borrower Obligations, (B) the preference or
priority ranking with respect to any of the Borrower Obligations, (C) the
existence, validity, enforceability or perfection of any security interest or
collateral security under any Loan Document, or the release, exchange,
substitution or loss or impairment of any such security interest or collateral
security, (D) any failure, delay, neglect or omission by the Lender to realize
upon or protect any direct or indirect collateral security, indebtedness,
liability or obligation, any Loan Document, or any agreement, instrument or
document executed or delivered in connection therewith, or any of the Borrower
Obligations, (E) the existence or exercise of any right of set-off by the
Lender, (F) the existence, validity or enforceability of any other guarantee
with respect to any of the Borrower Obligations, the liability of any other
Person in respect of any of the Borrower Obligations, or the release of any such
Person or any other guarantor of any of the Borrower Obligations, (G) any act or
omission of the Lender in connection with the administration of any Loan
Document or any of the Borrower Obligations, (H) the bankruptcy, insolvency,
reorganization or receivership of, or any other proceeding for the relief of
debtors commenced by or against, any Person, (I) the disaffirmance or rejection,
or the purported disaffirmance or purported rejection, of any of the Borrower
Obligations, any Loan Document, or any agreement, instrument or document
executed or delivered in connection therewith, in any bankruptcy, insolvency,
reorganization or receivership, or any other proceeding for the relief of
debtor, relating to any Person, (J) any law, regulation or decree now or
hereafter in effect that might in any manner affect any of the terms or
provisions of any Loan Document, or any agreement, instrument or document
executed or delivered in connection therewith or any of the Borrower
Obligations, or that might cause or permit to be invoked any alteration in the
time, amount, manner or payment or performance of any of the Borrower's
obligations and liabilities (including the Borrower Obligations), (K) the merger
or consolidation of the Borrower into or with any Person, (L) the sale by the
Borrower of all or any part of its assets, (M) the fact that at any time and
from time to time none of the Borrower Obligations may be outstanding or owing
to the Lender, (N) any amendment or modification of, or supplement to, any Loan
Document, or (O) any other reason or circumstance that might otherwise
constitute a defense available to or a discharge of the Borrower in respect of
its obligations or liabilities (including the Borrower Obligations) or of such
Subsidiary Guarantor in respect of any of the Guarantor Obligations (other than
by the performance in full thereof).
Section 10.3. Repayment in Bankruptcy, etc.
-----------------------------
If, at any time or times subsequent to the payment of all or any
part of the Borrower Obligations or the Guarantor Obligations, the Lender shall
be required to repay
60
any amounts previously paid by or on behalf of the Borrower or any Subsidiary
Guarantor in reduction thereof by virtue of an order of any court having
jurisdiction in the premises, including as a result of an adjudication that such
amounts constituted preferential payments or fraudulent conveyances, the
Subsidiary Guarantors unconditionally agree to pay to the Lender, within 10 days
after demand, a sum in cash equal to the amount of such repayment, together with
interest on such amount from the date of such repayment by the Lender to the
date of payment to the Lender at the applicable after-maturity rate set forth in
Section 3.1(b).
Section 10.4. Additional Subsidiary Guarantors
--------------------------------
Upon the execution and delivery to the Lender of a Guarantee
Supplement by any Person, appropriately acknowledged, such Person shall be a
Subsidiary Guarantor.
Section 10.5. Miscellaneous
-------------
(a) Each Subsidiary Guarantor agrees that any statement of
account with respect to the Borrower Obligations from the Lender that binds the
Borrower shall also be binding upon such Subsidiary Guarantor, and that copies
of said statements of account maintained in the regular course of the Lender's
business may be used in evidence against such Subsidiary Guarantor in order to
establish its Guarantor Obligations.
(b) Subject to the limitations set forth in Section 10.1(b), the
Guarantor Obligations shall be joint and several.
(c) Notwithstanding anything to the contrary contained in this
Agreement, on and as of the date of any merger, consolidation or Acquisition
permitted by Section 7.3 or 7.5, as the case may be, that shall result in any
Subsidiary Guarantor ceasing to be a Subsidiary, such Subsidiary Guarantor
shall, without the consent of the Lender, cease to be a Subsidiary Guarantor and
shall have no further liability hereunder.
[Signature Pages Follow]
61
BEL FUSE INC.
AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT
---------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Credit and Guarantee Agreement to be duly executed and delivered by
their proper and duly authorized officers as of the day and year first above
written.
BEL FUSE INC.
By: /s/ Colin Dunn
----------------------------------------------
Name: Colin Dunn
Title: Vice President
BEL VENTURES INC.
BEL POWER PRODUCTS INC.
BEL TRANSFORMER INC.
BEL CONNECTOR INC.
AS TO EACH OF THE FOREGOING:
By: /s/ Colin Dunn
----------------------------------------------
Name: Colin Dunn
Title: Vice President
BEL FUSE INC.
AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT
---------------------------------------------------
THE BANK OF NEW YORK
By: /s/ Thomas Sweeney
-----------------------------------
Name: Thomas Sweeney
Title: Vice President
EXHIBIT 22.1
Subsidiaries of the Registrant
Jurisdiction of
Name Incorporation
---- ---------------
Bel Fuse Limited Hong Kong
Bel Fuse Macau LDA Macau
Bel Fuse Europe Ltd. United Kingdom
Bel Fuse America Inc. Delaware
Bel Fuse Delaware Inc. Delaware
Bel Fuse California Inc. California
Bel Ventures Inc. Delaware
Bel Power Products Inc. Delaware
Bel Power (Hangzhou) Co. Ltd. China
Bel Transformer Inc. Delaware
Bel Connector Inc. Delaware
Bel Components Ltd. Hong Kong
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
(2-93572, 33-45809, 33-53462, 333-65627 and 333-89376) on Forms S-8 of Bel Fuse
Inc. of our report dated March 18, 2003 (March 21, 2003 as to Notes 11 and 12)
(which report expresses an unqualified opinion and includes an explanatory
paragraph relating to the Company's change in method of accounting for goodwill
and other intangible assets to conform to Statement of Financial Accounting
Standards Board No. 142), appearing in this Annual Report on Form 10-K of Bel
Fuse Inc. for the year ended December 31, 2002.
Deloitte & Touche LLP
March 24, 2003
New York, New York
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Bel Fuse Inc. (the "Company") on Form
10-K for the year ended December 31, 2002 filed with the Securities and Exchange
Commission (the "Report"), I, Daniel Bernstein, President and Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934;and
(2) The information contained in the Report fairly presents, in all material
respects, the consolidated financial condition of the Company as of the dates
presented and consolidated result of operations of the Company for the periods
presented.
(3) A signed original of this written statement required by Section 906 has
been provided to Bel Fuse Inc. and will be retained by Bel Fuse Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
Dated: March 21, 2003
By: /s/ Daniel Bernstein
-----------------------------
Daniel Bernstein, President
and Chief Executive Officer
This certification has been furnished solely pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Bel Fuse Inc. (the "Company") on Form
10-K for the year ended December 31, 2002 filed with the Securities and Exchange
Commission (the "Report"), I, Colin Dunn, Vice President of Finance of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934;and
(2) The information contained in the Report fairly presents, in all material
respects, the consolidated financial condition of the Company as of the dates
presented and consolidated result of operations of the Company for the periods
presented.
(3) A signed original of this written statement required by Section 906 has
been provided to Bel Fuse Inc. and will be retained by Bel Fuse Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
Dated: March 21, 2003
By: /s/ Colin Dunn
-----------------------------------
Colin Dunn, Vice President of
Finance
This certification has been furnished solely pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.