JFL MERGER CO.
BURKE INDUSTRIES, INC.
$110,000,000
10% SENIOR NOTES DUE 2007
PURCHASE AGREEMENT
August 14, 1997
NationsBanc Capital Markets, Inc.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
Ladies and Gentlemen:
A wholly owned subsidiary of J.F. Lehman Equity Investors I, L.P.
("JFLEI"), JFL Merger Co., a California corporation (the "MergerCo."), proposes
to issue and sell to you (the "Initial Purchaser"), $110,000,000 principal
amount of 10% Senior Notes Due 2007 (the "Notes") of Burke Industries, Inc., a
California corporation (the "Company"), who shall succeed to MergerCo.'s
obligation to deliver the Notes by merging with MergerCo. concurrently with the
Closing Date (as defined herein). The Notes are to be issued under an indenture
(the "Indenture") to be dated as of August 15, 1997 between the Company and
certain of the subsidiaries of the Company acting as guarantors with respect to
the obligations of the Company thereunder (the "Guarantors") and U.S. Trust
Company of New York, N.A., as trustee (the "Trustee").
The sale of the Notes to the Initial Purchaser will be made without
registration of the Notes under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon exemptions from the registration
requirements of the Securities Act. The Initial Purchaser has advised MergerCo.
that the Initial Purchaser will offer and sell the Notes purchased by it
hereunder in accordance with Section 4 hereof as soon as it deems advisable.
The Notes will have the benefit of certain registration rights, pursuant to a
Registration Rights Agreement, substantially in the form attached hereto as
Exhibit A, to be dated as of August 20, 1997, between the Company and the
Initial Purchaser (the "Registration Rights Agreement").
In connection with the sale of the Notes, MergerCo. and the Company have
prepared a preliminary offering Memorandum, dated July 31, 1997, (the
"Preliminary Memorandum") and a final offering memorandum, dated August 14, 1997
(the "Final Memorandum"). Each of the Preliminary Memorandum and the Final
Memorandum sets forth certain information concerning the Company, MergerCo. and
the Notes. MergerCo. hereby confirms that it has authorized the use of the
Preliminary Memorandum and the Final Memorandum, and any amendment or supplement
thereto, in connection with the offer and sale of the Notes by the Initial
Purchaser.
Unless stated to the contrary, all references herein to the Final Memorandum are
to the Final Memorandum at the Execution Time (as defined below) and are not
meant to include any amendment or supplement, or any information incorporated by
reference therein, subsequent to the Execution Time.
1. INTRODUCTION. The Securities are being issued and sold in
connection with the recapitalization (the "Recapitalization") of the Company
by means of a merger of MergerCo. into the Company, with the Company as the
surviving corporation, pursuant to an Agreement and Plan of Merger, dated as
of August 13, 1997 (the "Merger Agreement") among the Company, J.F. Lehman &
Company, a Delaware corporation, MergerCo., and certain shareholders of the
Company. Pursuant to the Merger, all shares of the Company's common stock
(the "Common Stock"), other than those retained by certain members of
management and certain other shareholders (collectively, the "Continuing
Shareholders") of the Company will be converted into the right to receive
$9.31 per share in cash (the "Recapitalization Consideration"). Immediately
after consummation of the Recapitalization, JFLEI and the Continuing
Shareholders will own 65% and 15%, respectively, of the issued and
outstanding shares of the Company's Common Stock on a fully diluted basis.
Certain warrants to purchase the Company's Common Stock (the "Warrants")
will be issued in conjunction with the issuance of the 11 1/2% Series A
Cumulative Redeemable Preferred Stock (the "Preferred Stock") of the Company.
The Warrants will represent 20% of the shares of the Company's Common Stock
on a fully diluted basis. The time of the consummation of the
Recapitalization is referred to herein as the "Effective Time."
In order to finance the Recapitalization and the relevant fees, expenses
and commissions, including those payable under this agreement, the Company will
require financing of approximately $154.6 million. Of such amount:
(i) approximately $110.0 million has been provided through the issuance and sale
of the Senior Notes; (ii) approximately $18.0 million has been provided through
the issuance and sale of Preferred Stock and Warrants; (iii) approximately $20.0
million has been provided through the investment of JFLEI; and
(iv) approximately $6.6 million has been provided through the investment of the
Continuing Shareholders.
The Merger Agreement and the documents entered into in connection therewith
including, without limitation, the agreements attached thereto as exhibits, are
herein collectively referred to as the "Merger Documents." This Purchase
Agreement (this "Agreement"), the Notes and the Indenture are herein
collectively referred to as the "Offering Documents." The Offering Documents,
the Credit Agreement among MergerCo., NationsBank, N.A., as administrative
agent, and other lending institutions party thereto (the "New Credit Facility"),
to which the Company will become subject upon consummation of the Merger, the
Merger Documents and the other documents pursuant to which the Recapitalization
will be effected and financed (including, but not limited to, documents
providing for the repayment of the Company's existing credit facility between
Fleet Capital Corporation and the Company, documents providing for the repayment
of the Company's 12 1/4% Subordinated Notes due October 10, 2000 and documents
providing for the exercise of the Company's outstanding employee stock options)
are herein collectively referred to as the "Transaction Documents."
2. REPRESENTATIONS AND WARRANTIES. Each of JFLEI and MergerCo., jointly
and severally, represents and warrants to the Initial Purchaser that:
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(a) The Preliminary Memorandum, at the date thereof, did not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Final Memorandum, at the
date hereof, does not, and at the Closing Date (as defined below) will not
(or, if amended or supplemented, the Final Memorandum as amended or
supplemented at the date of any such amendment or supplement and at the
Closing Date, will not), contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that JFLEI and MergerCo. make no
representation or warranty as to the information contained in or omitted
from the Preliminary Memorandum or the Final Memorandum, or any amendment
or supplement thereto, in reliance upon and in conformity with information
furnished in writing to the Company or MergerCo. by or on behalf of the
Initial Purchaser specifically for inclusion therein.
(b) Neither the Company, MergerCo. nor any "Affiliate" (as defined in
Rule 501(b) of Regulation D under the Securities Act ("Regulation D") ) of
the Company or MergerCo. or any person acting on its or their behalf (other
than the Initial Purchaser, as to which no representation is made) has,
directly or indirectly, made offers or sales of any security, or solicited
offers to buy any security, under circumstances that would require the
registration of the Notes under the Securities Act.
(c) Neither the Company, MergerCo. nor any Affiliate, or any person
acting on its or their behalf (other than the Initial Purchaser, as to
which. no representation is made) has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with any offer or sale of the Notes in the United States.
(d) The Notes satisfy the eligibility requirements of Rule 144A(d)(3)
under the Securities Act.
(e) Neither the Company nor MergerCo. is or, as of the Effective
Time, will be an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company Act"), without
taking account of any exemption arising out of the number of holders of the
securities of the Company or MergerCo., as the case may be.
(f) Neither the Company nor MergerCo. has paid or agreed to pay to
any person any compensation for soliciting another to purchase any
securities of the Company or MergerCo. (except as contemplated by this
Agreement and the Merger Documents).
(g) The consolidated financial statements (including the notes
thereto) and schedules of the Company and its consolidated subsidiaries set
forth in the Final Memorandum fairly present in all material respects- the
financial position, results of operations and cash flows of the Company and
its consolidated subsidiaries as of the dates and for the periods specified
therein; since the date of the latest of such financial statements, there
has been no change nor any development or event involving a
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prospective change which has had a material adverse effect on (i) the
business, operations, properties, assets, liabilities, net worth, condition
(financial or otherwise) or prospects of the Company and its consolidated
subsidiaries, taken as a whole as the case may be, or (ii) the ability of
the Company to perform any of its obligations (whether existing prior to or
as of the Effective Time) under this Agreement, the Registration Rights
Agreement, the Indenture, the Notes or any of the other Transaction
Documents (a "Material Adverse Effect"); such financial statements and
schedules have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
(except as otherwise expressly noted in the Final Memorandum); the other
financial and statistical information and data set forth in the Final
Memorandum (and any amendment or supplement thereto) is, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements, except as otherwise stated therein; and the
statistical, market-related and projected financial data (including,
without limitation, the projected statement of operations data for the year
ended January 2, 1998) included in the Final Memorandum are based on or
derived from sources which the Company believes to be reliable and accurate
and are based upon assumptions and qualifications which the Company
considers reasonable and appropriate in all material respects.
(h) The pro forma financial statements (including the notes thereto)
and the other pro forma financial information included in the Final
Memorandum (i) comply as to form in all material respects with the
applicable requirements of Regulation S-X promulgated under the Exchange
Act, (ii) have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements and (iii) have
been properly computed on the bases described therein; the assumptions used
in the preparation of the pro forma financial data and other pro forma
financial information included in the Prospectus are reasonable in all
material respects and the adjustments used therein are appropriate in all
material respects to give effect to the transactions or circumstances
referred to therein.
(i) Subsequent to the respective dates as of which information is
given in the Preliminary Memorandum and the Final Memorandum, (i) the
Company, the subsidiaries of the Company and MergerCo. have not incurred
any material liability or obligation, direct or contingent, nor entered
into any material transaction not in the ordinary course of business;
(ii) the Company and MergerCo. have not purchased any of their outstanding
capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on their capital stock; and (iii) there has not
been any material change in the capital stock, short-term debt or long-term
debt of the Company, the subsidiaries of the Company or MergerCo., except
in each case as described in or contemplated by the Preliminary Memorandum
or the Final Memorandum, as the case may be.
(j) Each of the Company, the subsidiaries of the Company and
MergerCo. has been duly incorporated and is and, as of the Effective Time,
will be validly existing as a corporation in good standing under the laws
of California, or, in the case of each subsidiary of the Company, the
jurisdiction in which it is chartered or organized, and is and, as of the
Effective Time, will be duly qualified to do business as a foreign
corporation
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and is and, as of the Effective time, will be in good standing under the
laws of each jurisdiction which requires such qualification wherein it owns
or leases properties or conducts business, except in such jurisdictions in
which the failure to so qualify, singly or in the aggregate, would not have
a Material Adverse Effect.
(k) Each of the Company, the subsidiaries of the Company and
MergerCo. has and, as of the Effective Time, will have full power
(corporate and other) to own or lease its properties and conduct its
business as described in the Final Memorandum; the Company has full power
(corporate and other) to enter into the Registration Rights Agreement, the
Indenture and the Merger Agreement and to carry out all the terms and
provisions thereof to be carried out by it; MergerCo. has full power
(corporate and other) to enter into this Agreement, the Merger Agreement
and the New Credit Facility and to carry out all the terms and provisions
hereof and thereof to be earned out by it; JFLEI has full power (corporate
and other) to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it; the subsidiaries of the Company
have full power (corporate and other) to enter into the Registration Rights
Agreement and the Indenture and to carry out all the terms and provisions
thereof to be carried out by them; and the Company has full power
(corporate and other) to succeed to the obligations of MergerCo. under the
New Credit Facility upon consummation of the Recapitalization.
(l) The Company has, and the Company and MergerCo. will have, as of
the Effective Time, the authorized, issued and outstanding capitalization
as set forth in the Final Memorandum under the caption "Capitalization."
All of the issued shares of capital stock of the Company and MergerCo. have
been or will be, as of the Effective Time, duly authorized, validly issued,
fully paid and nonassessable and were not issued in violation of any
preemptive or similar rights.
(m) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire any
shares of capital stock of, or other ownership interest in, the Company or
any subsidiary thereof except as otherwise disclosed in the Final
Memorandum. At and as of the Effective Date, there will be no outstanding
subscriptions, rights, warrants, options, calls, convertible securities,
commitments of sale or liens related to or entitling any person to purchase
or otherwise to acquire any shares of capital stock of, or other ownership
interest in, the Company or any subsidiary thereof except as otherwise
disclosed in the Final Memorandum.
(n) The issued shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and, except for directors' qualifying shares and except
as otherwise set forth in the Final Memorandum are and, as of the Effective
Time, will be owned of record and beneficially by the Company, either
directly or through wholly owned subsidiaries, free and clear of any
pledge, lien, encumbrance, security interest, restriction on voting or
transfer, preemptive rights or claim of any third party. No subsidiary of
the Company is or, as of the Effective Time, will be prohibited, directly
or indirectly, from paying any dividends to the Company, from making any
other distribution on such subsidiary's capital stock, from repaying to the
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Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or
any other subsidiary of the Company, except as described in or contemplated
by the Final Memorandum.
(o) Neither the Company nor any of its subsidiaries nor MergerCo. is
or, as of the Effective Time, neither the Company nor any of its
subsidiaries will be (i) in violation of its corporate charter or bylaws,
(ii) in breach or violation of any law, ordinance, governmental or
administrative rule or regulation or court decree or (iii) in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which it is a party or by which its
respective properties may be bound, which in the case of (ii) or (iii)
would have a Material Adverse Effect.
(p) The issuance, offering and sale of the Notes to the Initial
Purchaser pursuant to this Agreement, the Company succeeding upon
consummation of the Recapitalization to MergerCo.'s obligations under the
New Credit Facility, the delivery of the Notes under this Agreement, the
compliance by the Company and the Guarantors with the other provisions of
this Agreement and the provisions of the Registration Rights Agreement, the
Indenture, the Notes and the Merger Agreement, the compliance by MergerCo.
with the provisions of this Agreement, the Merger Agreement and the New
Credit Facility, the compliance by JFLEI with the provisions of this
Agreement, the consummation of the other transactions herein and therein
contemplated and the consummation of the other transactions contemplated
hereby and in the Final Memorandum do not (i) require the consent,
approval, authorization, order, registration or qualification of or with
any governmental authority or court, except such as may be required under
state securities or blue sky laws or except as may be contemplated by the
Registration Rights Agreement or (ii) conflict with, result in a breach or
violation of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company, any of its subsidiaries or MergerCo. pursuant to, any
material contract, loan agreement, note, indenture, mortgage, deed of
trust, lease or other agreement or instrument to which the Company, any of
the subsidiaries of the Company or MergerCo. is a party, or by which the
Company, any of the subsidiaries of the Company or MergerCo. or any of
their respective properties is bound, or the charter or by-laws of the
Company, any of the subsidiaries of the Company or MergerCo., or any
statute, rule or regulation or any judgment, order or decree of any
governmental authority or court or arbitrator applicable to the Company,
any of the subsidiaries of the Company or MergerCo., except as rights to
indemnity and contribution may be limited by federal or state securities
laws or public policy.
(q) The Company and the subsidiaries of the Company possess and, as
of the Effective Time, will possess all certificates, authorizations and
permits (including environmental permits) issued by the appropriate
federal, state or foreign regulatory authorities or bodies necessary to
conduct their respective businesses, except for those the lack of which
would not cause a Material Adverse Effect, and neither the Company, any of
its subsidiaries nor MergerCo. has received any notice of proceedings
relating to the
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revocation-or modification of any such certificate, authorization or permit
which, singly or in the aggregate, is reasonably likely to result in a
Material Adverse Effect.
(r) No legal or governmental proceedings or investigations are
pending to which the Company or any of the subsidiaries of the Company is
or, as of the Effective Time, will be a party or to which the property of
the Company or any of the subsidiaries of the Company is subject that are
not described in the Final Memorandum, and no such proceedings or
investigations, to the best knowledge of the Company add MergerCo., have
been threatened against the Company, any of the subsidiaries of the Company
or MergerCo., or with respect to any of their respective properties, except
in each case for such proceedings or investigations that, singly or in the
aggregate, are not reasonably likely to result in a Material Adverse
Effect.
(s) The Company, each of the subsidiaries of the Company and
MergerCo. have and, as of the Effective Time, will have valid title in fee
simple to all items of real property and title to all personal property
owned by each of them, in each case free and clear of any pledge, lien,
encumbrance, security interest or other defect or claim of any third party,
except (i) such as do not materially and adversely affect the value of such
property and do not interfere with the use made or proposed to be made of
such property by the Company, such subsidiary or MergerCo. to an extent
that such interference would have a Material Adverse Effect, and
(ii) permitted liens set forth in the Final Memorandum. Any real property
and buildings held under lease by the Company, any such subsidiary or
MergerCo. are held and, as of the Effective Time, will be held under valid,
subsisting and enforceable leases, with such exceptions as do not
materially interfere with the use made or proposed to be made of such
property and buildings by the Company, such subsidiary or MergerCo.
(t) This Agreement has been duly authorized, executed and delivered
by JFLEI and MergerCo.
(u) The Registration Rights Agreement, the indenture, the New Credit
Facility and the Merger Agreement have been or, as of the Effective Time,
will have been duly authorized by all necessary corporate actions of the
Company and, when duly executed and delivered by the Company (and its
subsidiaries, as applicable) and the other parties thereto or, in the case
of the New Credit Facility, upon consummation of the Recapitalization,
will, both prior to and as of the Effective Time, constitute legal, Valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the same may be limited by
(i) applicable bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights generally, including without limitation
the effect of statutory or other laws regarding fraudulent conveyances or
transfers; or preferential transfers, or (ii) general principles of equity,
whether considered at law or at equity, and except as rights to indemnity
and contribution in the Registration Rights Agreement may be limited by
federal or state securities laws or public policy.
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(v) The Merger Agreement and the New Credit Facility have been or, as
of the Effective Time, will have been duly authorized by all necessary
corporate actions of MergerCo. and the Company and, when duly executed and
delivered by MergerCo. and the other parties thereto, will, both prior to
and as of the Effective Time, constitute legal, valid and binding
obligations of MergerCo., enforceable against MergerCo. in accordance with
their terms, except as the same may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally, including without limitation the effect of
statutory or other laws regarding fraudulent conveyances or transfers or
preferential transfers, or (ii) general principles of equity, whether
considered at law or at equity.
(w) Prior to the Effective Time, the Notes will have been duly
authorized by all necessary corporate action for issuance and sale pursuant
to this Agreement and, when executed, authenticated, issued and delivered
in the manner provided for in the Indenture and sold and paid for as
provided in this Agreement, the Notes will constitute legal, valid and
binding obligations of the Company and the Guarantors entitled to the
benefits of the Indenture and enforceable against the Company and the
Guarantors in accordance with their terms, except as the same may be
limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally, including
without limitation the effect of statutory or other laws regarding
fraudulent conveyances or transfers or preferential transfers or
(ii) general principles of equity, whether considered at law or at equity.
(x) Ernst & Young LLP, who have audited certain financial statements
of the Company and its consolidated subsidiaries and delivered their
reports with respect to the audited consolidated financial statements and
schedules in the Final Memorandum, are independent public accountants
within the meaning of the Securities Act and the applicable rules and
regulations thereunder.
(y) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(z) Neither the Company nor any of dc subsidiaries of the Company is
now or, after giving effect to the issuance of the Notes and the
consummation of the transactions contemplated by the Final Memorandum will
be (i) insolvent, (ii) left with unreasonably small capital with which to
engage in its anticipated businesses or (iii) incurring debts beyond its
ability to pay such debts as they become due.
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(aa) The Company and the subsidiaries of the Company own or otherwise
possess and, as of the Effective Time, will continue to own or otherwise
possess the right to use all patents, trademarks, service marks, trade
names and copyrights, all applications and registrations for each of the
foregoing, and all other proprietary rights and confidential information
used in the conduct of their respective businesses as currently conducted,
except to the extent the-absence thereof would not have a Material Adverse
Effect; and neither the Company nor any subsidiary of the Company has
received any notice, or is otherwise aware, of any infringement of or
conflict with the rights of any third party with respect to any of the
foregoing which, singly or in the aggregate, is reasonably likely to result
in a Material Adverse Effect.
(bb) The Company and the subsidiaries of the Company are and, as of
the Effective Time, will continue to be insured by insurers of recognized
financial responsibility (or by appropriate self-insurance) against such
losses and risks and in such amounts as are prudent and customary in the
businesses and in the locations in or at which they are engaged; and
neither the Company nor any such subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have
a Material Adverse Effect.
(cc) There is (i) no unfair labor practice complaint pending against
the Company or any of its subsidiaries or, to the best knowledge of the
Company, threatened against any of them, before the National Labor
Relations Board or any state or local labor relations board, and no
significant grievance or more significant arbitration proceeding arising
out of or under any collective bargaining agreement is so pending against
the Company or any of its subsidiaries or, to the best knowledge of the
Company, threatened against any of them, and (ii) no significant strike,
labor dispute, slowdown or stoppage pending against the Company or any of
its subsidiaries or, to the best knowledge of the Company, threatened
against it or any of its subsidiaries which, in the case of (i) or (ii) is
likely to result in a Material Adverse Effect.
(dd) The Company has and, as of the Effective Time, will have filed
all foreign, federal, state and local tax returns that are required to be
filed, except insofar as the failure to file such returns, singly or in the
aggregate, would not have a Material Adverse Effect, or has requested
extensions thereof and in each case has paid all taxes required to be paid
by it and any other assessment, fine or penalty levied against it, to the
extent that any of the foregoing is due and payable, other than those being
contested in good faith and for which adequate reserves have been provided
or those currently payable without penalty or interest.
(ee) Neither of the Company, MergerCo. nor any Affiliate of the
Company or MergerCo. has taken, directly or indirectly, any action designed
to cause or result in, or which has constituted or which might reasonably
be expected to cause or result in, stabilization or manipulation (as such
terms are defined under the Exchange Act) of the price of any security of
the Company to facilitate the sale or resale of the Notes.
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(ff) Except as disclosed in the Final Memorandum, and except as would
not individually or in the aggregate have a Material Adverse Effect (i) the
Company and each of its subsidiaries is and, as of the Effective Time, will
be in compliance with all applicable Environmental Laws (as defined below),
(ii) the Company and each its subsidiaries has and, as of the Effective
Time, will have all permits, authorizations and approvals required under
any applicable Environmental Laws and is in compliance with their
requirements, (iii) there are no pending, or to the best knowledge of the
Company or any of its subsidiaries threatened, Environmental Claims (as
defined below) against the Company or any of its subsidiaries and (iv) the
Company and each of its subsidiaries does not have knowledge of any
circumstances with respect to any of their respective properties or
operations that could reasonably be anticipated to form the basis of an
Environmental Claim against the Company or any of its subsidiaries or any
of their respective properties or operations and the business operations
relating thereto that would have a Material Adverse Effect. For purposes
of this Agreement, the following terms shall have the following meanings:
"Environmental Law" means, with respect to any person, any federal, state,
local or municipal statute, law, rule, regulation, ordinance, code, policy
or rule of common law and any published judicial or administrative
interpretation thereof including any judicial or administrative order,
consent decree or judgment binding on such person or any of its
subsidiaries, relating to the environment, health, safety or any chemical,
material or substance, exposure to which is prohibited, limited or
regulated by any such governmental authority. "Environmental Claims" means
any and all administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
(gg) The Company has reasonably concluded that any and all costs and
liabilities incurred or reasonably expected to be incurred pursuant to any
Environmental Law (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and potential liabilities to third
parties) would not, singly or in the aggregate, have a Material Adverse
Effect.
(hh) Each certificate signed by any officer of the Company and
delivered to the Initial Purchaser or its counsel shall be deemed to be a
representation and warranty by the Company to the Initial Purchaser as to
the matters covered thereby.
(ii) Each certificate signed by any officer of MergerCo. and delivered
to the Initial Purchaser or its counsel shall be deemed to be a
representation and warranty by MergerCo. to the Initial Purchaser as to the
matters covered thereby.
(jj) Except as stated in the Final Memorandum none of the Company or
any of its subsidiaries or MergerCo. knows of any outstanding claims
against it for services, either in the nature of a finder's fee, financial
advisory fee, origination fee or similar fee, with respect to the
transactions contemplated by the Transaction Documents.
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(kk) The guarantees by the subsidiaries have been duly authorized by
each of the Guarantors, and, when executed and authenticated in accordance
with the provisions of the Indenture, will conform in all material respects
to the description thereof in the Final Memorandum, will be valid and
binding obligations of each of the Guarantors, will be entitled to the
benefits of the Indenture and will be enforceable in accordance with their
terms, except as the same may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally, including without limitation the effect of statutory or
other laws regarding fraudulent conveyances or transfers or preferential
transfers or (ii) general principles of equity, whether considered at law
or at equity..
(ll) MergerCo. was formed solely for the purpose of consummating the
Recapitalization. MergerCo. has no material assets or liabilities,
conducts no business and is a party to no material agreements other than
this Agreement and as described in the Final Memorandum.
(mm) The sale of the Notes to the Initial Purchaser does not
constitute a "prohibited transaction" (as defined in the Employee
Retirement Income Security Act of 1974, as amended).
3. PURCHASE AND SALE. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, MergerCo.
agrees to cause the Company to sell to the Initial Purchaser, and the Initial
Purchaser agrees to purchase from the Company at a purchase price of 97% of the
principal amount thereof, plus accrued interest, if any, from August 14, 1997 to
the Closing Date, $110,000,000 principal amount of Notes.
4. DELIVERY AND PAYMENT. Delivery of and payment for the Notes shall be
made at 10:00 a.m. New York City time, on August 20, 1997, or such later date as
the Initial Purchaser shall designate, which date and time may be postponed by
agreement between the Initial Purchaser and MergerCo. (such date and time of
delivery and payment for the Notes being herein called the "Closing Date").
Delivery of the Notes shall be made to the Initial Purchaser against payment by
the Initial Purchaser of the purchase price thereof to or upon the order of
MergerCo. in immediately available funds or such other manner of payment as may
be agreed by MergerCo. and the Initial Purchaser. Delivery of the Notes shall
be made at such location as the Initial Purchaser shall reasonably designate at
least one business day in advance of the Closing Date and payment for the Notes
shall be made at the offices of Shearman & Sterling ("Counsel for the Initial
Purchaser"), 599 Lexington Avenue, New York, New York, with any transfer taxes
payable in connection with the transfer of the Notes fully paid, against payment
of the purchase price therefor. Certificates for the Notes shall be registered
in such names and in such denominations as the Initial Purchaser may request not
less than two full business days in advance of the Closing Date.
MergerCo. agrees to have the Notes available for inspection, checking and
packaging by the Initial Purchaser in New York, New York, not later than
1:00 p.m. on the business day prior to the Closing Date.
11
5. OFFERING OF NOTES BY THE INITIAL PURCHASER. The Initial Purchaser
represents and warrants to and agrees with JFLEI and MergerCo. that:
(a) It has not offered or sold, and will not offer or sell, any Notes
except to those it reasonably believes to be (i) "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) and that, in
connection with each such sale, it has taken or will take reasonable steps
to ensure that the purchaser of such Notes is aware that such sale is being
made in reliance on Rule 144A, or (ii) other institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D)
that, prior to their purchase of the Notes, deliver to the Initial
Purchaser a letter containing the representations and agreements set forth
in the form of Annex A to the Final Memorandum.
(b) Neither it nor any person acting on its behalf has made or will
make offers or sales of the Notes in the United States by means of any form
of general solicitation or general advertising (within the meaning of
Regulation D) in the United States.
(c) The Initial Purchaser's acquisition of the Notes does not
constitute a "prohibited transaction" (as defined in the Employee
Retirement Income Security Act of 1974, as amended).
6. AGREEMENTS. MergerCo. agrees with the Initial Purchaser that:
(a) The Company and MergerCo. will furnish to the Initial Purchaser
and to Counsel for the Initial Purchaser, without charge, during the period
referred to in paragraph (c) below, as many copies of the Final Memorandum
and any amendments and supplements thereto as it may reasonably request.
The Company and MergerCo. will pay the expenses of printing of all
documents relating to the Offering.
(b) The Company and MergerCo. will not amend or supplement the Final
Memorandum unless the Initial Purchaser shall previously have been advised
thereof and shall not have objected thereto in writing within ten business
days after being furnished a copy thereof.
(c) Prior to the consummation of the exchange offer made pursuant to
the Registration Rights Agreement or the effectiveness of an applicable
shelf registration statement if, in the reasonable judgment of the Initial
Purchaser, the Initial Purchaser or any of its Affiliates are required to
deliver an offering memorandum in connection with sales of, or
market-making activities with respect to, the Notes, (a) the Company will
periodically amend or supplement the Final Memorandum so that the
information contained in the Final Memorandum complies with the
requirements of Rule 144A of the Securities Act, (b) the Company will amend
or supplement the Final Memorandum when necessary to reflect any material
changes in the information provided therein so that the Final Memorandum
will not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in
light of the circumstances existing as of the date the Final Memorandum is
so delivered, not
12
misleading and (c) the Company will provide the Initial Purchaser with
copies of each such amended or supplemented Final Memorandum, as the
Initial Purchaser may reasonably request. MergerCo. and JFLEI hereby
expressly acknowledge that the indemnification and contribution provisions
of Section 9 hereof are specifically applicable and relate to each offering
memorandum, registration statement, prospectus, amendment or supplement
referred to in this Section 6(c).
(d) The Company and MergerCo. will arrange for the qualification of
the Notes for sale by the Initial Purchaser under the laws of such
jurisdictions as the Initial Purchaser may reasonably designate and will
maintain such qualifications in effect as long as required for the sale of
the Notes; PROVIDED, HOWEVER, that the Company and MergerCo. shall not be
obligated to qualify as a foreign corporation in any jurisdiction in which
they are not now so qualified or to take any action that would subject them
to general consent to service of process in any jurisdiction in which they
are not now so subject or to subject themselves to taxation in any such
jurisdiction. MergerCo. or the Company will promptly advise the Initial
Purchaser of the receipt by the Company or MergerCo. of any notification
with respect to the suspension of the qualification of the Notes for sale
in any jurisdiction or the initiation or threatening of any proceeding for
such purpose.
(e) Whenever the Company or MergerCo. publishes or makes available to
the public (by filing with any regulatory authority or securities exchange
or by publishing a press release or otherwise) any information that could
reasonably be expected to be material in the context of the offer and sale
of Notes under this Agreement, the same shall immediately notify the
Initial Purchaser as to the nature of such information or event. Until the
third anniversary of the Closing Date, the Company will notify the Initial
Purchaser of (i) any decrease in the rating of the Notes or any other debt
securities of the Company by any nationally recognized statistical rating
organization (as defined in Rule 436(g) under the Securities Act) or
(ii) any notice given of any intended or potential decrease in any such
rating or of a possible change in any such rating which does not indicate
the direction of the possible change, as soon as the Company becomes aware
of any such decrease or notice. For a period of two years after the
Closing Time, the Company will also deliver to the Initial Purchaser, as
soon as available and to the extent individually prepared, and without
request, copies of its latest annual report and quarterly statement and any
reports of its auditors thereon.
(f) Neither the Company, MergerCo., any of their Affiliates, nor any
person acting on its or their behalf other than the Initial Purchaser, as
to which no agreement is made, will, directly or indirectly, make offers or
sales of any security, or solicit offers to buy any security, under
circumstances that would require the registration of the Notes under the
Securities Act (other than pursuant to the Registration Rights Agreement).
(g) Neither the Company, MergerCo., any of their Affiliates, nor any
person acting on its or their behalf other than the Initial Purchaser, as
to which no agreement is made, will engage, in connection with the offering
of the Notes, (i) in any form of general
13
solicitation or general advertising (within the meaning of Regulation D) or
(ii) in any public offering within the meaning of Section 4(2) of the
Securities Act.
(h) So long as any of the Notes are "restricted securities' within
the of Rule 144(a)(3) under the Securities Act, the Company will, during
any period 1 which it is not subject to and in compliance with Section 13
or 15(d) of the Exchange Act, provide to each holder of such restricted
securities and to each prospective purchaser (as designated by such holder)
of such restricted securities, upon the request of such holder or
prospective purchaser, any information required to be provided by
Rule 144A(d)(4) under the Securities Act. Such information, at the date of
its provision by the Company to such holders or prospective purchasers,
will not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. This covenant is
intended to be for the benefit of the holders and the prospective
purchasers designated by such holders from time to time of such restricted
securities.
(i) The Company and MergerCo. will cooperate with the Initial
Purchaser and use their best efforts to (i) permit the Notes to be eligible
for clearance settlement through The Depository Trust Company and
(ii) permit the Notes to be designated PORTAL-eligible securities in
accordance with the rules and regulations of the National Association of
Securities Dealers, Inc. (the "NASD").
(j) The Company and MergerCo. will not, until 180 days following the
Closing Date, without the prior written consent of the Initial Purchaser,
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce the offering of, any debt securities issued or
guaranteed by the Company or MergerCo. (other than the Notes).
(k) The Company and MergerCo. will apply the net proceeds from the
sale of the Notes as set forth in the Final Memorandum under the caption
"Use of Proceeds."
7. CONDITIONS TO THE OBLIGATION OF THE INITIAL PURCHASER. The
obligations of the Initial Purchaser to purchase the Notes shall be subject to
the accuracy in all material respects of the representations and warranties on
the part of the Company, JFLEI and MergerCo. contained herein at the date and
time that this Agreement is executed and delivered by the parties hereto (the
"Execution Time"), and at the Closing Date as specified in Section 7(g), to the
accuracy in all material respects of the statements of the Company and MergerCo.
made in any certificates pursuant to the provisions hereof, to the performance
by the Company and MergerCo. of their obligations hereunder at or prior to the
Closing Date and to the following additional conditions:
(a) The Company shall have entered into a Registration Rights
Agreement with the Initial Purchaser substantially in the form attached
hereto as Exhibit A.
(b) The Company and MergerCo. shall have entered into the Merger
Agreement attached hereto as Exhibit B. The closing contemplated by the
Merger Agreement, including without limitation the Recapitalization, shall
be consummated in
14
accordance with the terms of the Merger Agreement contemporaneously with
the sale of the Notes pursuant to this Agreement.
(c) MergerCo. shall have entered into the New Credit Facility with
NationsBank, N.A., as administrative agent, and other lending institutions
party thereto substantially in the form attached hereto as Exhibit C and
the Company shall have succeeded to the obligation of MergerCo. thereunder
upon consummation of the Recapitalization. There shall exist at and as of
the Closing Date no conditions that would constitute a default (or an event
that with notice or the lapse of time, or both, would constitute a default)
under the New Credit Facility. On the Closing Date, all conditions to
closing under the New Credit Facility shall have been satisfied, and the
Company shall have unused commitments of at least $15,000,000 under the New
Credit Facility. On the Closing Date, the New Credit Facility shall be in
full force and effect and shall not have been modified.
(d) The Company and the Trustee shall have entered into the
Indenture, substantially in the form attached hereto as Exhibit D.
(e) The Company shall have furnished to the Initial Purchaser the
opinion of Gibson, Dunn & Crutcher, L.L.P., Counsel for the Company, dated
the Closing Date, substantially to the effect that:
(i) the Company is a corporation validly existing and in good
standing under the laws of California and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction which requires such qualification wherein it
owns or leases properties or conducts business, except in such
jurisdictions in which the failure to so qualify, singly or in the
aggregate, would not have a Material Adverse Effect;
(ii) Each of the Guarantors is a corporation validly existing
and in good standing under the laws of the jurisdiction in which it is
chartered or organized and is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns or
leases properties or conducts business, except in such jurisdictions
in which the failure to so qualify, singly or in the aggregate, would
not have a Material Adverse Effect;
(iii) the Company has the authorized, issued and outstanding
capitalization as set forth in the Final Memorandum under the caption
"Capitalization." All of the issued shares of capital stock of the
Company have been duly authorized and validly issued and are fully
paid and nonassessable and were not, to the best of such counsel's
knowledge, issued in violation of any preemptive or similar rights;
(iv) the issued shares of capital stock of each of the
Guarantors have been duly authorized and validly issued, are fully
paid and nonassessable and,
15
except for directors' qualifying shares and except as otherwise set
forth in the Final Memorandum are owned of record and beneficially by
the Company, either directly or through wholly owned subsidiaries,
free and clear, to the best of such counsel's knowledge, of any
pledge, lien, encumbrance, security interest, restriction on voting or
transfer, preemptive rights or other defect or claim of any third
party;
(v) this Agreement has bee duly authorized, executed and
delivered by MergerCo.;
(vi) The Merger Agreement has been duly authorized, executed
and delivered by the Company and each of the Registration Rights
Agreement and the Indenture have been duly authorized, executed and
delivered by the Company and the Guarantors and constitute legal,
valid and binding obligations of the Company and the Guarantor,
enforceable against the Company and the Guarantors in accordance with
their terms, except as the same may be limited by (A) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally, including without limitation
the effect of statutory or other laws regarding fraudulent conveyances
or transfers, preferential transfers or distributions by corporations
to shareholders, (B) general principles of equity, whether considered
at law or at equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, or (C) other
customary exceptions specified by such counsel in their opinion and
reasonably satisfactory to Counsel for the Initial Purchaser;
(vii) each of the Merger Agreement and the New Credit Facility
have been duly authorized, executed and delivered by MergerCo. and the
New Credit Facility has been duly authorized by the Company and each
such document constitutes a legal, valid and binding obligation of
MergerCo. as of the time of its execution and of the Company as of the
Effective Time, enforceable against MergerCo. or the Company, as the
case may be, in accordance with its terms, except as the same may be
limited by (A) applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally,
including without limitation the effect of statutory or other laws
regarding fraudulent conveyances or transfers, preferential transfers
or distributions by corporations to shareholders, (B) general
principles of equity, whether considered at law or at equity,
including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, or (C) other customary
exceptions specified by such counsel in their opinion and reasonably
satisfactory to Counsel for the Initial Purchaser;
(viii) the Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Initial Purchaser pursuant to this
Agreement, will constitute legal, valid and binding obligations of the
Company and the Guarantors entitled to the benefits of the Indenture
and enforceable against the Company and the Guarantors in accordance
with their terms, except as may be limited by
16
(A) applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally, including without
limitation the effect of statutory or other laws regarding fraudulent
conveyances or transfers, preferential transfers or distributions by
corporations to shareholders, (B) general principles of equity,
whether considered at law or at equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing,
or (C) other customary exceptions specified by such counsel in their
opinion and reasonably satisfactory to Counsel for the Initial
Purchaser;
(ix) the statements set forth under the headings "The
Transactions," "Description of Senior Notes," "Description of New
Credit Facility," "Description of Preferred Stock and Warrants" and
"Plan of Distribution" in the Final Memorandum, insofar as such
statements constitute summaries of the legal matters, documents and
proceedings, referred to therein, fairly summarize the matters
referred to therein;
(x) the issuance, offering, sale and delivery of the Notes to
the initial Purchaser pursuant to this Agreement, the Company
succeeding upon consummation of the Recapitalization to MergerCo.'s
obligations under the New Credit Facility, the delivery of the Notes
under this Agreement, the compliance by the Company and the Guarantors
with the other provisions of this Agreement and the provisions of the
Registration Rights Agreement, the Indenture, the Notes and the Merger
Agreement, the compliance by MergerCo. with the provisions of this
Agreement, the Merger Agreement and the New Credit Facility, the
consummation of the other transactions herein and therein contemplated
and the consummation of the other transactions contemplated hereby and
in the Final Memorandum do not (i) require the consent, approval,
authorization, order, registration or qualification of or with any
governmental authority or court, except such as may be required under
state securities or blue sky laws or except as may be contemplated by
the Registration Rights Agreement or (ii) (a) conflict with, result in
a breach or violation of, or constitute a default under the charter or
by-laws of the Company, any of the subsidiaries of the Company or
MergerCo. or, (b) result in a breach or violation of, or constitute a
default under or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company, any
of its subsidiaries or MergerCo. pursuant to (1) any material
contract, loan agreement, note, indenture, mortgage, deed of trust,
lease or other agreement or instrument to which the Company, any of
the subsidiaries of the Company or MergerCo. is a party, or by which
the Company, any of the subsidiaries of the Company or MergerCo. or
any of their respective properties is bound that has been identified
to such Counsel as being the only such documents that are material to
the Company, such subsidiary or Merger Co., as applicable, by officers
of such entity pursuant to an officers' certificate attached to such
opinion, or, (2) to the best of such Counsel's knowledge, (x) any
statute, rule or regulation that in such counsel's experience is
generally applicable to transactions of the type contemplated by the
Final Memorandum and the Merger Agreement or (y) any judgment, order
or decree of any governmental authority or court or arbitrator
17
applicable to the Company, any of the subsidiaries of the Company or
MergerCo., except as rights to indemnity and contribution may be
limited by federal or state securities laws or public policy.
(xi) To the best knowledge of such counsel, there are no
pending or threatened legal or governmental proceedings to which the
Company is a party that would be required under the Securities Act to
be described in a registration statement or a prospectus delivered at
the time of the confirmation of the sale of an offering of securities
registered under the Securities Act that are not described in the
Final Memorandum, or, to such counsel's best knowledge after due
inquiry, that seek to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Notes to the Initial
Purchaser;
(xii) assuming the accuracy of the representations and
warranties of the Initial Purchaser and compliance by it with its
agreements contained herein, no registration of the Notes under the
Securities Act is required, and no qualification of the Indenture
under the Trust Indenture Act of 1939 is necessary, for the offer and
sale by the Initial Purchaser of the Notes in the manner contemplated
by this Agreement; and
(xiii) Neither the Company nor MergerCo. is an "investment
company" within the meaning of the Investment Company Act without
taking account of any exemption arising out of the number of holders
of securities of the Company or MergerCo.
In addition, such counsel shall also state that such counsel has
participated in conferences with officers and representatives of the
Company and MergerCo., representatives of the independent public
accountants for the Company and the Initial Purchaser at which the contents
of the Final Memorandum and related matters were discussed, and no facts
have come to the attention of such counsel that lead such counsel to
believe that the Final Memorandum, as of its date or as of the Closing
Date, contained or contains an untrue statement of a material fact or
omitted or omits to state any material fact necessary to make the
statements therein, in light of the circumstances under which there were
made, not misleading (it being understood that such counsel need express no
belief or opinion with respect to the financial statements and other
financial data included therein).
In rendering the opinions set forth in paragraph (iii) and (iv) above,
such counsel may rely, to the extent such opinions relate to issuances of
Common Stock by the Company prior to the Recapitalization and as specified
in such opinion, upon the opinion of Morrison & Foerster LLP.
All references in this Section 7(e) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the Closing Date.
18
(f) The Initial Purchaser shall have received from Shearman &
Sterling, Counsel for the Initial Purchaser such opinion or opinions, dated
the Closing Date, with respect to the issuance and sale of the Notes and
other related matters as the Initial Purchaser may reasonably require, and
the Company and MergerCo. shall have furnished to such counsel such
documents as they reasonably request for the purpose of enabling them to
pass upon such matters;
(g) (i) the representations and warranties on the part of the Company
and MergerCo. in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same effect as if made on
the Closing Date, and the Company and MergerCo. shall have complied with
all the agreements and satisfied all the conditions on their part to be
performed or satisfied hereunder at or prior to the Closing Date;
(ii) since the date of the most recent financial statements
included in the Final Memorandum, there shall have been no change nor
any development or event involving a prospective change constituting a
Material Adverse Effect; and
(iii) the Company shall have furnished to the Initial Purchaser
a certificate of the Company signed by the chief executive officer and
the principal financial or accounting officer of the Company dated the
Closing Date, to the effect that the signers of such certificate have
carefully examined the Final Memorandum, any amendment or supplement
to the Final Memorandum and this Agreement and to the effect set forth
in clauses (i) and (ii) above.
(h) At the Execution Time and at the Closing Date, Ernst & Young LLP
shall have furnished to the Initial Purchaser a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date, in form
and substance satisfactory to the Initial Purchaser, confirming that they
are independent accountants within the meaning of the Securities Act and
the Exchange Act and the applicable rules and regulations thereunder and
Rule 101 of the Code of Professional Conduct of the American Institute of
Certified Public Accountants (the "AICPA") and otherwise satisfactory in
form and substance to the Initial Purchaser and its Counsel.
(i) The Notes shall have been designated PORTAL-eligible securities
in accordance with the rules and regulations of the NASD.
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Final Memorandum losses or interferences with their
businesses, taken as a whole, from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Final Memorandum or (ii) since such date, there
shall not have been any change in the capital stock or long-term debt of
the Company or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company or its subsidiaries, taken as a whole, otherwise
than as set forth or contemplated
19
in the Final Memorandum, the effect of which, in any such case described in
clause (i) or (ii), is, in the reasonable judgment of the Initial
Purchaser, so material and adverse as to make it impracticable or
inadvisable to proceed with the offering or the delivery of the Notes being
delivered on the Closing Date on the terms and in the manner contemplated
herein and in the Final Memorandum.
(k) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or The NASDAQ Stock Market's
National Market, or in the over-the-counter market shall have been
suspended or materially limited, or minimum prices shall have been
established on such exchange; (ii) a banking moratorium shall have been
declared by federal or New York State authorities; (iii) the United States
shall have become engaged in hostilities, there shall have been an
escalation in hostilities involving the United States or there shall have
been a declaration of a national emergency or war by the United States; or
(iv) there shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of international
conditions on the financial markets in the United States shall be such) as
to make it, in the reasonable judgment of the Initial Purchaser,
impracticable or inadvisable to proceed with the offering or delivery of
the Notes being delivered on the Closing Date on the terms and in the
manner contemplated herein and in the Final Memorandum.
(l) None of the issuance and sale of the Notes pursuant to this
Agreement, the Recapitalization or any of the other transactions
contemplated by any of the Transaction Documents or the Final Memorandum
shall be enjoined (temporarily or permanently) and no restraining order or
other injunctive order shall have been issued or any action, suit or
proceeding shall have been commenced with respect to this Agreement, the
Merger Agreement, the New Credit Facility, the Recapitalization or any of
the other transactions contemplated by the Final Memorandum, before any
court or governmental authority.
(m) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Securities Act) or any notice given of
any intended or potential decrease in any such rating or of a possible
change in any such rating that does not indicate the direction of the
possible change.
(n) The Company shall have furnished to the Initial Purchaser the
opinion of Houlihan Lokey Howard & Zukin Capital, in form and substance
acceptable to Counsel for the Initial Purchaser, attesting to the solvency
of each of the Company and its subsidiaries after giving effect to the
Recapitalization.
(o) Prior to the Closing Date, the Company shall have furnished to
the Initial Purchaser such further information, certificates and documents
as the Initial Purchaser may reasonably request.
20
If any of the conditions specified in this Section 7 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Initial Purchaser and Counsel for the Initial Purchaser,
this Agreement and all obligations of the Initial Purchaser hereunder may be
canceled at the Closing Date by the Initial Purchaser. Notice of such
cancellation shall be given to the Company and MergerCo. in writing or by
telephone or telegraph confirmed in writing.
The documents required to be delivered by this Section 7 will be delivered
at the office of Counsel for Company, at 200 Park Avenue, New York, New York, on
the Closing Date.
8. PAYMENT OF EXPENSES. MergerCo. hereby agrees that the Company and
MergerCo. shall, whether or not the transactions contemplated by this Agreement
are consummated, pay all expenses incident to the performance of their
obligations under this Agreement, including the fees and disbursements of their
accountants and counsel, the cost of printing and delivery of the Preliminary
Memorandum, the Final Memorandum, all amendments thereof and supplements
thereto, this Agreement and all other documents relating to the offering, the
cost of preparing, printing, packaging and delivering the Notes, the fees and
disbursements, including fees of counsel incurred in compliance with
Section 6(d), the fees and disbursements of the Trustee, the fees of any agency
that rates the Notes and the fees and expenses incurred in connection with the
admission of the Notes for trading in the PORTAL system. If the sale of the
Notes provided for herein is not consummated because any condition to the
obligations of the Initial Purchaser set forth in Section 6 hereof is not
satisfied or because of any refusal, inability or failure on the part of the
Company or MergerCo. to perform any agreement herein or comply with any
provision hereof other than by reason of default by the Initial Purchaser in
payment for the Notes on the Closing Date, JFLEI and MergerCo. will reimburse
the Initial Purchaser upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
it in connection with the proposed purchase and sale of the Notes.
9. INDEMNIFICATION AND CONTRIBUTION. (a) JFLEI and MergerCo. agree to
indemnify and hold harmless the Initial Purchaser, the directors, officers,
employees and agents of the Initial Purchaser and each person who controls the
Initial Purchaser within the meaning of either the Securities Act or the
Exchange Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Securities
Act, the Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Preliminary Memorandum, the Final Memorandum or any information provided by the
Company or MergerCo. or any of their Affiliates or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and agree to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that JFLEI and MergerCo. will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission
21
(i) made in the Preliminary Memorandum or the Final Memorandum, or in any
amendment thereof or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Initial
Purchaser specifically for inclusion therein or (ii) made in the Preliminary
Memorandum if a copy of the Final Memorandum was not delivered by or on behalf
of the Initial Purchaser to the person asserting any claim against the Initial
Purchaser, the Final Memorandum was required by law to have been so delivered by
the Initial Purchaser and the untrue statement contained in or omission from
such Preliminary Memorandum was corrected in the Final Memorandum; and PROVIDED,
FURTHER, that the liability of JFLEI under this subparagraph (a) shall be
limited to $2,500,000. This indemnity agreement will be in addition to any
liability which the Company, JFLEI or MergerCo. may otherwise have.
(b) The Initial Purchaser agrees to indemnify and hold harmless JFLEI
and MergerCo., their directors, their officers, and each person who controls
JFLEI or MergerCo. within the meaning of either the Securities Act or the
Exchange Act, to the same extent as the foregoing indemnity from JFLEI and
MergerCo. to the Initial Purchaser, but only with reference to written
information relating to the Initial Purchaser furnished to the Company by or on
behalf of the Initial Purchaser specifically for inclusion in the Preliminary
Memorandum or the Final Memorandum (or in any amendment or supplement thereto).
This indemnity agreement will be in addition to any liability which the Initial
Purchaser may otherwise have. The JFLEI and MergerCo. acknowledge that the
statements set forth in the last paragraph of the cover page, the last paragraph
on page ii and under the heading "Plan of Distribution" in the Preliminary
Memorandum and the Final Memorandum constitute the only information furnished in
writing by or on behalf of the Initial Purchaser for inclusion in the
Preliminary Memorandum or the Final Memorandum (or any amendment or supplement
thereto).
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 9, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party
(i) will riot relieve it from liability under paragraph (a) or (b) above unless
and to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying party shall
be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
PROVIDED, HOWEVER, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be
22
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all such indemnified parties and that all
such fees and expenses shall be reimbursed as they are incurred. Such firm
shall be designated in writing by NationsBanc Capital Markets, Inc. in the case
of parties indemnified pursuant to-paragraph (a) above and by JFLEI or
MergerCo., as the case may be, in the case of parties indemnified pursuant to
paragraph (b) above. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent (not to be
unreasonably withheld), but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment to the extent required by paragraph (a) or (b) above, as
applicable. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the third
and fourth sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 20 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least five days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. An indemnifying party
will not, without the prior written consent of the indemnified parties, settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 9 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, JFLEI, MergerCo. and the Initial Purchaser
agree to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively, "Losses") to which JFLEI,
MergerCo. and the Initial Purchaser may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company, JFLEI and
MergerCo. on the one hand and by the Initial Purchaser on the other hand from
the offering of the Notes; PROVIDED, HOWEVER, that in no case shall the Initial
Purchaser be responsible for any amount in excess of the purchase discount or
commission applicable to the Notes purchased by the Initial Purchaser hereunder;
and PROVIDED, further, that in no case shall the liability of JFLEI under this
subparagraph (d) exceed $2,500,000. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, JFLEI, MergerCo.
and the Initial Purchaser shall contribute in such proportion as is appropriate
to reflect
23
not only such relative benefits but also the relative fault of the Company,
JFLEI and of MergerCo. on the one hand and of the Initial Purchaser on the other
hand in connection with the statements or omissions which resulted in such
Losses as well as any other relevant equitable considerations. Benefits
received by the Company, JFLEI and MergerCo. shall be deemed to be equal to the
total net proceeds from the offering (before deducting expenses), and benefits
received by the Initial Purchaser shall be deemed to be equal to the total
purchase discounts and commissions received by the Initial Purchaser from
MergerCo. in connection with the purchase of the Notes hereunder. Relative
fault shall be determined by reference to whether any alleged untrue statement
or omission relates to information provided by the Company, JFLEI, MergerCo. or
the Initial Purchaser. JFLEI, MergerCo. and the Initial Purchaser agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take, into account
of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 9, each person who
controls the Initial Purchaser within the meaning of either the Securities Act
or the Exchange Act and each director, officer, employee and agent of the
Initial Purchaser shall have the same rights to contribution as the Initial
Purchaser, and each person who controls JFLEI or MergerCo. within the meaning of
either the Securities Act or Exchange Act and each officer and director of JFLEI
or MergerCo. shall have the same rights to contribution as JFLEI or MergerCo.,
respectively, subject in each case to the applicable terms and conditions of
this paragraph (d).
10. TERMINATION. This Agreement shall be subject to termination in the
absolute discretion of the Initial Purchaser, by notice given to MergerCo. prior
to delivery of and payment for the Notes, if prior to such time any of the
events described in Section 7(j) or 7(k) shall have occurred or if the Initial
Purchaser shall decline to purchase the Notes for any reason permitted under
this Agreement.
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of the
Company, JFLEI, MergerCo- or their officers and of the Initial Purchaser set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the Initial
Purchaser, the Company, JFLEI or MergerCo. or any of the officers, directors or
controlling persons referred to in Section 9 hereof, and will survive delivery
of and payment for the Notes. The provisions of Sections 8 and 9 hereof shall
survive the termination or cancellation of this Agreement.
12. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Initial Purchaser, will be
mailed, delivered or telecopied and confirmed to it at 100 North Tryon Street,
Charlotte, North Carolina 28255, Attention: William Casperson, or, if sent to
the Company, will be mailed, delivered or telecopied and confirmed to the
Company at 2250 South Tenth Street, San Jose, California 95112, Attention: Dave
Wordington, Vice President, Finance or, if sent to JFLEI or MergerCo., will be
mailed, delivered or telecopied and confirmed to JFLEI or MergerCo. c/o J.F.
Lehman & Company, 450 Park Avenue, Sixth Floor, New York, New York 10022,
Attention: Keith Oster.
24
13. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 9 hereof, and no
other person will have any right or obligation hereunder.
14. APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
15. BUSINESS DAY. For purposes of this Agreement, "business day" means
each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which
banking institutions in The City of New York, New York are authorized or
obligated by law, executive order or regulation to close.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original, but all such
counterparts will together constitute one and the same instrument.
18. EXPIRATION OF LIABILITY OF JFLEI. Notwithstanding any provisions in
this Agreement to the contrary, JFLEI shall have no liability whatsoever
pursuant to this Agreement at any time after the Effective Time.
25
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
Agreemenet and your acceptance shall represent a binding agreement between
MergerCo., JFLEI and the Initial Purchaser.
Very truly yours,
JFL MERGERCO.
By:
-----------------------------
Name:
Title:
J.F. LEHMAN EQUITY INVESTORS I, L.P.
By:
-----------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
NATIONSBANC CAPITAL MARKETS, INC.
By:
----------------------------
Name:
Title:
26
Exhibit A
Registration Rights Agreement
Exhibit B
Agreement and Plan of Merger
Exhibit C
Credit Agreement
Exhibit D
Indenture