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EXHIBIT 4.06
NASHUA CORPORATION
SUMMARY OF TERMS AND CONDITIONS
MARCH 27, 1996
The following is a summary of the changes to the Note Agreement dated
September 13, 1991 (as amended, the "EXISTING NOTE AGREEMENT") between Nashua
Corporation (the "COMPANY") and The Prudential Insurance Company of America
("PRUDENTIAL"). This summary sets forth the agreement in principle of the
Company and Prudential in respect of the Existing Note Agreement subject to the
conditions precedent set forth herein. Except as specified herein, all other
terms shall remain as set forth in the Existing Note Agreement.
MATURITY: December 31, 1997.
AMORTIZATION: One half of the outstanding principal amount of the
Notes on October 1, 1996 shall be payable in four
quarterly principal payments on the first business day
of each calendar quarter ("MINIMUM PREPAYMENTS")
plus accrued interest and Yield-Maintenance Amount
commencing on January 2, 1997, with the balance due
and payable on the maturity date plus accrued interest
and Yield-Maintenance Amount (as the same may be
deferred and subordinated in accordance with the
terms set forth herein).
INTEREST RATE: 11.85% [increase to be commensurate with bank
facility] per annum payable quarterly.
YIELD-MAINTENANCE
AMOUNT: The Yield-Maintenance Amount shall be:
(a) calculated from the original maturity date of March
20, 2001 using the coupon rate of 9.67% and a
reinvestment yield of 50 basis points over U.S.
Treasury securities; and
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(b) computed as if prepayments were
applied to scheduled principal
prepayments required under the
Existing Note Agreement on a pro
rata basis.
Yield Maintenance Amount due in connection with any optional
or mandatory prepayment, including Minimum Prepayments, made
prior to the earliest of (i) a Bankruptcy Event, (ii) an
Acceleration Event (in each case as defined in Exhibit A)
and (iii) the maturity of the Note shall be evidenced
by a promissory note ("YMA NOTE") bearing the same interest
rate per annum as the Note (payment of all principal and
interest on such YMA Note being deferred until payment in
full of all Bank Obligations (as defined below)) with such
YMA Note being due and payable on the maturity date of the
Note. Each YMA Note shall be a secured obligation
subordinated to the Obligations (as defined below).
MANDATORY
PREPAYMENTS: The following amounts shall be applied as
prepayments in accordance with the following section
entitled "APPLICATION OF FUNDS":
(a) 100% of the net proceeds of any incurrence of
indebtedness (not otherwise permitted by the Note
Agreement Documentation) after the Closing Date
(as defined below) by the Company or any of its
subsidiaries;
(b) 100% (or 75% after mandatory prepayments
of principal (including amounts paid to the
Collateral Agent (as defined below) as cash
collateral in respect of outstanding letters of
credit) of the Credit Facilities and the Notes
have been paid to the Lenders (as defined
below) in an aggregate amount equal to
$50,000,000 less the Holdback Amount (as
defined below)) of the net proceeds from the
sale or issuance of equity (other than the
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issuance of equity to senior
employees in amounts to be agreed on
in connection with management
incentive programs) after the
Closing Date by the Company or any
of its subsidiaries shall be paid to
Chemical Bank, as collateral agent
(the "Collateral Agent") for the
Banks and each holder of a Note
(collectively, the "SENIOR NOTE
HOLDERS"; the Senior Note Holders
and the Banks collectively referred
to as the "LENDERS") for application
as provided below under "APPLICATION
OF FUNDS"; provided, that in the
case of the issuance or sale of
equity of Cerion Technologies, Inc.
("CERION") on terms and conditions
satisfactory to the Lenders, only
the net proceeds from the sale of
such equity by Nashua Precision
Technologies, Inc. ("NPT") (and not
the net proceeds from the issuance
of equity by Cerion) shall be paid
to the Collateral Agent as a
mandatory prepayment as provided
above;
(c) 100% (or 75% after mandatory prepayments
of principal (including amounts paid to the
Collateral Agent as cash collateral in respect of
outstanding letters of credit) of the Credit
Facilities and the Notes have been paid to the
Lenders in an aggregate amount equal to
$50,000,000 less the Holdback Amount of the
net proceeds in excess of $500,000 on an
individual basis and $1,000,000 on a
cumulative basis of any sale or other
disposition by the Company or any of its
subsidiaries of any assets (except for the sale
of inventory and obsolete assets in the ordinary
course of business and for the sale of assets in
amounts to be agreed when the net proceeds
are used for reinvestments in similar assets)
shall be paid to the Collateral Agent for
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application as provided below under
"APPLICATION OF FUNDS"; and
(d) On February 15, 1997, the Company shall pay
to the Collateral Agent 100% (or 75% after
mandatory prepayments of principal (including
amounts paid to the Collateral Agent as cash
collateral in respect of outstanding letters of
credit) of the Credit Facilities and the Notes
have been paid to the Lenders in an aggregate
amount equal to $50,000,000 less the
Holdback Amount) of Excess Cash Flow (as
defined in the Note Agreement
Documentation) as provided below under
"APPLICATION OF FUNDS".
At any time before the Revolving Credit
Facility (as defined below) has been
permanently reduced to an amount less than
or equal to $10,000,000, with respect to any
mandatory prepayment relating to either any
asset sale or equity issuance or sale
described under "MANDATORY PREPAYMENTS"
above with net cash proceeds in excess of
$15,000,000, the Company shall be entitled
to retain an amount (the "HOLDBACK AMOUNT")
equal to the excess, if any, of (i)
$3,000,000 over (ii) the amount of revolving
loans outstanding under the LIFO Revolver
and Old Money Revolver on the date of such
mandatory prepayment in excess of
$5,000,000.
APPLICATION OF
FUNDS: Application of prepayments described under
"MANDATORY PREPAYMENTS" above shall be
made in accordance with the Agreement in Principle,
dated March 27, 1996, between the Company and the
Banks, attached hereto as Exhibit A, as in effect
on the date thereof.
For purposes of this Summary of Terms and
Conditions, the following terms have the
following meanings:
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"ADJUSTED NOTE OBLIGATIONS" means principal
of the Notes plus accrued interest.
"BANK OBLIGATIONS" means (i) the
obligations under the new credit
facility among Chemical Bank, as
agent and certain banks (the
"BANKS") parties thereto and (ii)
Hedge Obligations.
"HEDGE OBLIGATIONS" has the meaning
assigned to such term in Exhibit A hereto.
"NOTE OBLIGATIONS" means the Adjusted Note
Obligations plus Yield Maintenance Amount.
"OBLIGATIONS" means, collectively, the Note
Obligations and the Bank Obligations.
All amounts required to be prepaid to the
Senior Note Holders in accordance with the
section "MANDATORY PREPAYMENTS" shall be
applied to installments of principal of the
Notes in inverse order of maturity.
If any change shall be made to the Bank's
current amortization that would have the
effect of accelerating principal
installments paid to the Lenders, the
Company shall prepay the Notes (with
Yield-Maintenance Amount, subject to the
subordination and deferral thereof as set
forth herein) in a proportional amount.
COLLATERAL: The Obligations and any YMA Notes shall be secured
by a perfected first priority security interest in all
receivables and inventory of the Company and all of
the assets of each of the Company's domestic
subsidiaries. All stock of the foreign subsidiaries
shall be pledged to the Collateral Agent, except in the
case where the Lenders determine that only 65% may be
pledged due to adverse tax consequences. All of the
foregoing, including any additional collateral which
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may be pledged by the Company as described under
"AFFIRMATIVE COVENANTS" below, collectively, the
"COLLATERAL".
The security agreements shall create two
separate and distinct liens. A prior lien
will secure principal of loans (including
unreimbursed draws under New Money L/Cs)
outstanding under the Credit Facilities in
excess of $56,018,000 (including interest
thereon) and a second lien shall secure all
remaining secured Obligations.
CREDIT FACILITIES: The aggregate amount of the Credit Facilities will be
$66,000,000, of which $48,000,000 will be designated
term loans and $18,000,000 will be revolving loans.
The revolving loans (the "REVOLVING CREDIT
FACILITY") will be structured as follows:
- $5,000,000 of existing indebtedness owed to
the Banks will be deemed outstanding under
the Revolving Credit Facility (the "OLD MONEY
REVOLVER").
- $5,000,000 will be a Letter of Credit sub-limit
that can be used exclusively for letters of
credit issued for insurance coverage purposes
only (except for a $250,000 sublimit for letters
of credit issued for purposes other than
insurance coverage). The Bank of Montreal
L/C's in the face amount of $3,018,000 will be
replaced by L/C's issued under the L/C
subfacility. Therefore, approximately
$1,982,000 will be available for new money
L/C's (the "NEW MONEY L/C'S").
- $8,000,000 will be available as new money
revolving credit (the "LIFO REVOLVER").
Other than the Hedge Obligations existing on
the date hereof, the Company shall not enter
into any other
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hedge agreements other than spot and forward foreign
exchange contracts (not to exceed 6 months in
duration) in the aggregate notional amount not to
exceed $4,000,000 in the following currencies:
Belgian Francs, Canadian Dollars, British Pounds and
Dutch Gilders.
The mandatory prepayments shall be on the
same basis as set forth in Exhibit A.
The contingent fees shall be on the same basis as set
forth herein.
INITIAL CONDITIONS: The closing shall be conditioned
upon satisfaction of, among other things,
the following conditions precedent (the date
upon which all such conditions precedent
shall be satisfied, the "CLOSING DATE"):
(a) The Company and its subsidiaries
shall have executed and delivered
definitive financing and security
documentation and intercreditor
agreement (the "NOTE AGREEMENT
DOCUMENTATION") in each case in form
and substance satisfactory to
Prudential.
(b) Prudential shall have received the
results of a recent lien search in
each of the jurisdictions and
offices where the collateral is
located or recorded, and such search
shall reveal no liens on any of the
Collateral except for liens
permitted by the Note Agreement
Documentation.
(c) No material adverse change shall have
occurred to the business, operations or
prospects of the Company or any of its
subsidiaries.
(d) The Company shall have received all necessary
approvals from its Board of Directors.
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(e) Prudential shall have received any necessary
consents from the Banks.
(f) The Banks shall have entered into a
credit agreement and related
documentation on terms and
conditions acceptable to Prudential
and in conformity with the terms
specified under the heading "Credit
Facilities".
(g) Prudential and the Banks shall have
executed an intercreditor agreement
satisfactory in form and substance
to Prudential and shall include,
without limitation, the following:
- Sharing of any proceeds received by
the Company in a manner contemplated by the
above section entitled "APPLICATION OF
FUNDS";
- Sharing of any funds received by setoff
as provided in the "APPLICATION
OF FUNDS" section above;
- Consent of a majority in principal
amount of Notes shall be required in
order for the Banks to make advances
under the Credit Facilities in excess of
$66,000,000; and once permanent
reductions to the Credit Facilities are
made, such amounts cannot be
readvanced without the consent of a
majority in principal amount of the
Notes. To the extent not already
provided for in the 2/29/96 draft of the
Collateral Agency and Intercreditor
Agreement, the Collateral Agency and
Intercreditor Agreement shall contain
provisions that ensure that the
Required Secured Parties (as defined
therein) may not (i) impair the rights of
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the Senior Noteholders under the Existing
Note Agreement, and (ii) materially impair
the rights of the Senior Noteholders in the
Collateral subject to the lien of the
Collateral Agent, in each case without
the prior consent of a majority in principal
amount of the Notes; provided however that
nothing contained in this sentence shall be
construed as requiring any provisions
in the Collateral Agency and Intercreditor
Agreement that could limit the rights
of the Required Secured Parties to direct the
exercise or non-exercise of rights under the
Collateral Agency and Intercreditor
Agreement (including foreclosure on
collateral and the filing of a petition in
bankruptcy against the Company or any
of its subsidiaries) or limit any rights of
the Required Secured Parties to direct
actions with respect to preserving or
protecting the Collateral.
- The Agent on behalf of the Banks will
give prior notice of any material
amendments in its documentation; and
h) Prudential shall have received such
legal opinions (including opinions
(i) from counsel to the Company and
its subsidiaries and (ii) from such
special and local counsel as may be
required by Prudential), documents
and other instruments as are
customary for transactions of this
type or as Prudential may reasonably
request.
AFFIRMATIVE
COVENANTS: The Company will provide the Senior Note Holders
with copies of the unaudited monthly management
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report within a number of days to be determined after
the end of each calendar month and such other
financial information as the Senior Note Holders may
reasonably request, including a revised business plan
for fiscal year 1996.
The Company and its Subsidiaries shall
maintain their lockboxes and accounts with
their current banks but shall enter into
such agreements with the Collateral Agent
and such banks (in form and substance
satisfactory to the Collateral Agent and the
Lenders) to ensure that the Collateral Agent
has a perfected security interest and the
receipts in cash in such lockboxes and
accounts.
At its next shareholders' meeting the
Company will use its best efforts to obtain
all necessary consents to pledge all of its
assets to the Collateral Agent and if it
obtains such consents will pledge such
remaining assets to the Collateral Agent
within 10 Business Days after being so
requested by the Senior Note Holders.
FINANCIAL
COVENANTS: (a) EBITDA (to be defined in the Note
Agreement Documentation), measured on a
cumulative basis, for any test period set forth
below, will not, as at the last day of such test
period, be less than the number set forth below
opposite such test period:
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QUARTER AMOUNT
January 1, 1996 - $ 1,640,000
March 31, 1996
January 1, 1996 - $ 7,800,000
June 30, 1996
January 1, 1996 - $19,150,000
September 30, 1996
January 1, 1996 - $27,300,000
December 31, 1996
(b) The ratio of EBITDA to Fixed Charges
(each to be defined in the Note
Agreement Documentation), measured
on a cumulative basis for any test
period set forth below, will not, as
at the last day of such test period,
be less than the ratio set forth
below opposite such test period:
QUARTER RATIO
January 1, 1996 - .67:1
March 31, 1996
January 1, 1996 - 1.59:1
June 30, 1996
January 1, 1996 - 2.60:1
September 30, 1996
January 1, 1996 - 2.78:1
December 31, 1996
and thereafter on a
rolling four-quarter
basis
(c) Consolidated Tangible Net Worth (to be
defined in the Note Agreement
Documentation) will not at any time during
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any quarter set forth below be less than the
number opposite such quarter:
QUARTER AMOUNT
Fourth Quarter 1995 $39,100,000
First Quarter 1996 $36,500,000
Second Quarter 1996 $37,100,000
Third Quarter 1996 $40,800,000
Fourth Quarter 1996 $42,700,000
and thereafter
(d) Capital Expenditures of the Company
and its Subsidiaries will not for
each fiscal year set forth below
exceed the amount set forth opposite
such fiscal year:
FISCAL YEAR
1995 $17,200,000
1996 $17,000,000
1997 $17,500,000
NEGATIVE
COVENANTS: Customary limitations including, without limitation,
limitations on: indebtedness (including preferred
stock); liens; guarantee obligations; mergers;
consolidations; sales of assets; leases; dividends and
other payments in respect of capital stock;
investments, loans and advances; modifications of debt
instruments; transactions with affiliates; sale and
leasebacks; negative pledge clauses; changes in lines of
business.
CONTINGENT FEES
AND COVENANTS: If the Obligations are not prepaid (including amounts
paid to the Collateral Agent as cash collateral in
respect of outstanding letters of credit) by an
aggregate amount equal to at least $20,000,000 less
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the Holdback Amount, on or prior to June 30,
1996, the Company shall pay to the Senior
Note Holders on July 1, 1996, a facility fee
equal to 1% of the average outstanding
principal amount of the Notes during the
period commencing on the Closing Date and
ending on June 30, 1996.
If the Obligations are not prepaid
(including amounts paid to the Collateral
Agent as cash collateral in respect of
outstanding letters of credit) by the
aggregate amount equal to at least
$50,000,000 less the Holdback Amount, on or
prior to September 30, 1996, then on October
1, 1996, the Company shall pay to the Senior
Note Holders a facility fee equal to 1% of
the average outstanding principal amount
under the Notes during the period commencing
on the Closing Date and ending on September
30, 1996.
AMENDMENT FEE: 3/8 of 1%, payable in immediately available funds on
the Closing Date. Once paid, such fee shall be fully
earned and nonrefundable.
EXPENSES AND
INDEMNIFICATION: The Company will pay the out-of-pocket expenses of
Prudential and the fees and disbursements of counsel
to the Senior Note Holders in connection with the
Note Agreement Documentation whether or not a
closing shall occur. The Note Agreement
Documentation will provide that the Company will pay
the costs and expenses (including counsel fees and
disbursements) of any modification or waiver of the
Note Agreement Documentation (whether or not
effective) and the costs of enforcing or defending
rights under the Note Agreement Documentation. The
Note Agreement Documentation will also provide that
the Company will pay the costs of any bankruptcy
proceeding or restructuring and the costs of
responding to any subpoena or investigation in
connection with the Note Agreement Documentation.
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If an event of default shall occur, the
Senior Note Holders shall have the right to
engage an independent financial consultant
acceptable to the Senior Note Holders, at
the Company's expense, to assist in the
analysis regarding the performance and
operations of the Company.
The Company shall indemnify, pay and hold
harmless each Senior Note Holder (and its
respective directors, officers, employees
and agents) against any loss, liability,
cost or expense incurred in respect of the
financing contemplated hereby or the use or
the proposed use of proceeds thereof (except
to the extent resulting from the gross
negligence or willful misconduct of the
indemnified party).
ASSIGNMENT: The consent of the Company shall not be required for
any assignments.
MISCELLANEOUS: If the Credit Facilities are hereafter amended such that
any material terms thereof (including, without
limitation, pricing, covenants, amortization, events of
default and mandatory prepayments) are more
favorable to the Banks than the terms hereof are to the
Senior Note Holders (as determined by the Senior
Note Holders in their sole discretion), the Company
shall enter into an amendment of the Note Agreement
Documentation in order to include such favorable
terms therein.
By January 1, 1997 (the "AMENDMENT DATE"),
the Company shall negotiate in good faith
with the Senior Note Holders in order to
enter into an amendment to the Note
Agreement Documentation for the purpose of
continuing the financial covenants described
above through the maturity date of the
Notes. If after thirty days after the
Amendment Date, the Company and the Note
Holders have not agreed on appropriate
levels for such financial covenants through
the maturity date of the Notes, the Senior
Note Holders in their reasonable judgment
shall set such levels and the
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Company and the Note Holders shall execute
an amendment to the Note Agreement
Documentation on the thirty-first day after
the Amendment Date for the purposes of
including the levels with respect to such
financial covenants set by the Senior Note
Holders as part of the Note Agreement
Documentation for the period through the
maturity date of the Notes. During the 10
Business Day period after any material asset
sale, the Company shall negotiate in good
faith with the Senior Note Holders in order
to enter into an amendment to the Note
Agreement Documentation for the purpose of
resetting the financial covenant levels
described above. If the Company and the
Senior Note Holders have not agreed on
appropriate levels for such financial
covenants by the end of such 10 Business Day
period, the Senior Note Holders in their
reasonable judgment shall set such levels
and the Company and the Senior Note Holders
shall execute an amendment to the Note
Agreement Documentation on the first
Business Day after such 10 Business Day
period for the purposes of including the new
levels set by the Senior Note Holders as
part of the Note Agreement Documentation.
The closing shall occur on April 3, 1996.
JURISDICTION AND
LAW: State of New York.
[Signatures on Next Page.]
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IN WITNESS WHEREOF, the parties hereto have caused this Summary of Terms
and Conditions to be duly executed by their proper and duly authorized officers
as of the day and year first written above.
NASHUA CORPORATION
By /s/ Daniel M. Junius
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Name: Daniel M. Junius
Title: Vice President
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By /s/ Joe Alouf
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Name: Joe Alouf
Title: Senior Vice President