INVESTMENT AGREEMENT
INVESTMENT AGREEMENT, dated as of February 3, 1998 (this "AGREEMENT"), by
and among JFL-EEC MERGER SUB CO., a Delaware corporation (the "COMPANY"),
JACKSON NATIONAL LIFE INSURANCE COMPANY ("PURCHASER I"), INDOSUEZ ELECTRONICS
PARTNERS ("PURCHASER II) and OLD HICKORY FUND I, L.L.C. ("PURCHASER III," and,
together with Purchaser I and Purchaser II, the "PURCHASERS"). Capitalized
terms not otherwise defined where used shall have the meanings ascribed thereto
in Article I.
WHEREAS, the Boards of Directors of the Company and Elgar Holdings, Inc., a
Delaware corporation ("HOLDINGS") have determined to effect a recapitalization
of Holdings and its wholly-owned subsidiary Elgar Electronics Corporation
("ELGAR") pursuant to which, among other things, (i) JFL-EEC LLC, a Delaware
limited liability company ("JFL-EEC LLC"), will make a capital contribution in
the amount of approximately $19.0 million to the Company, (ii) the Company will
issue, on the terms and subject to the conditions set forth in this Agreement,
shares of its Series A 10% Cumulative Redeemable Preferred Stock (the "PREFERRED
STOCK") and certain warrants (the "WARRANTS") in exchange for an aggregate of
$10.0 million, (iii) the Company will offer and issue $90.0 million in aggregate
principal amount of 9 7/8% Senior Notes due 2008 (the "SENIOR NOTES"), (iv) the
Company will merge with and into Holdings, with Holdings surviving such merger
and assuming the liabilities and obligations of the Company (the "MERGER"),
including without limitation the liabilities and obligations with respect to the
Series A Preferred Stock, the Warrants and the Senior Notes, (v) pursuant to the
Merger Agreement, (A) immediately prior to the Merger, Holdings will effect an
approximately 9,220 to 1 stock split, such at the effective time of the Merger
there will be approximately 9,220,000 shares of Holdings common stock, $.01 par
value per share (the "COMMON STOCK") issued and outstanding, (B) Carlyle-EEC
Acquisition Partners, L.P., the owner of all of the issued and outstanding
capital stock of Holdings immediately prior to the Merger, will liquidate and
distribute the shares of Common Stock to its partners, and (C) each share of the
Common Stock issued and outstanding immediately prior to the Merger, other than
certain shares held by certain shareholders and members of management, will be
converted into the right to receive cash, and (v) Holdings and Elgar will enter
into a new credit facility providing for revolving credit borrowings of up to
$15.0 million (all such transactions shall be collectively referred to herein as
the "RECAPITALIZATION");
WHEREAS, as a part of and a condition to the Recapitalization, Purchasers
have agreed, severally and not jointly, to purchase, and the Company has agreed
to sell, subject to the terms and conditions of this Agreement, (i) shares of
its Series A Preferred Stock to the Purchasers and (ii) Warrants to purchase its
Common Stock; and
WHEREAS, the Company and Purchasers desire to set forth certain agreements
herein.
NOW THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained and intending to be legally bound
hereby, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings set
forth below:
"AFFILIATE" shall mean, with respect to any Person, any other Person
which directly or indirectly controls or is controlled by or is under
common control with such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to
(i) direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership
interests, by contract or otherwise) or (ii) vote 10% or more of the
securities having ordinary voting power for the election of directors (or
Persons performing similar duties) of such Person. For purposes hereof,
"Affiliates" of the Company shall include all holders of Common Stock and
securities exercisable for or convertible into Common Stock party to the
Shareholders Agreement.
"ANCILLARY DOCUMENTS" shall mean the Certificate of Designations, the
Registration Rights Agreement and the Warrants.
"BUSINESS DAY" shall mean any day, other than a Saturday, Sunday or a
day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
"CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designations, Preferences and Relative Participating, Optional and Other
Special Rights of the Series A Preferred Stock which is attached hereto as
EXHIBIT A.
"CLOSING" and "CLOSING DATE" shall have the meanings set forth in
Section 2.02(a).
"COMMON STOCK" shall mean the Company's common stock, $.01 par value
per share.
"COMPANY SUBSIDIARY" shall mean any Subsidiary of the Company.
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"CONTRACTUAL OBLIGATION" shall mean, as to any Person, any provision
of any note, bond or security issued by such Person, or of any mortgage,
indenture, deed of trust, lease, license, franchise, contract, agreement,
instrument or undertaking to which such Person is a party or by which it or
any of its property is subject.
"DEBT OFFERING MEMORANDUM" shall mean the final offering memorandum
dated January 30, 1998 with respect to the offering and issuance by the
Company of the Senior Notes, which final offering memorandum was delivered
to Purchasers prior to the date of this Agreement.
"ELGAR" shall have the meaning set forth in the Recitals hereto.
"ELIGIBLE TRANSFEREE" shall mean, and any partner of any Purchaser,
any Person who controls or is under common control with any Purchaser, any
successor to any Purchaser or any such other Person and any "qualified
institutional buyer" as defined in Rule 144A promulgated under the
Securities Act.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL ENTITY" shall mean any nation or government, any state
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government and any self-regulating organization, securities
exchange or securities trading system.
"HOLDINGS" shall have the meaning set forth in the Recitals hereto.
"INITIAL PERCENTAGE" shall mean 13.33% of the Common Stock of Holdings
on the Closing Date, calculated after consummation of the Recapitalization
on a fully diluted basis after giving effect to (i) the conversion and
exercise of all outstanding warrants, options and other securities of the
Company convertible or exercisable for Common Stock (whether or not such
securities are then currently exercisable) and (ii) the issuance and
exercise of the Warrants, and prior to giving effect to any Management
Incentive Stock Option Plan.
"INITIAL PURCHASERS" shall mean Purchaser I, Purchaser II and
Purchaser III.
"JFL-EEC LLC" shall mean JFL-EEC LLC, a Delaware limited liability
company.
"LEHMAN" shall mean J.F. Lehman & Company, a Delaware corporation.
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"LEHMAN AGREEMENT" shall mean the management agreement to be entered
by and among Holdings, Elgar, and Lehman on the Closing Date.
"LIEN" shall mean any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other) or security agreement of any kind or
nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement or any financing lease having substantially
the same effect as any of the foregoing).
"MANAGEMENT INCENTIVE STOCK OPTION PLAN" means a plan to be adopted,
at the sole discretion of the Company, providing for the granting of
options to purchase up to 300,000 shares of Common Stock to directors and
officers of the Company, Holdings and Elgar.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on
(i) the assets, properties, business, financial condition, results of
operations or prospects of the Company and the Company Subsidiaries taken
as a whole, (ii) the ability of the Company or any Company Subsidiary to
perform its obligations under this Agreement or the Ancillary Documents or
(iii) the validity or enforceability of this Agreement or any of the
Ancillary Documents or the rights or remedies of any Purchaser hereunder
and thereunder.
"MERGER" shall mean the merger of the Company with and into Holdings
on the Closing Date, with Holdings as the surviving entity.
"MERGER AGREEMENT" shall mean the Agreement and Plan of Merger, dated
as of January 2, 1998, by and among JFL-EEC LLC, Holdings , the Company and
TC Group, L.L.C., pursuant to which, among other things, the Company has
agreed to merge with and into Holdings, with Holdings as the surviving
entity.
"PERMITS" shall have the meaning set forth in Section 3.01(h).
"PERSON" shall mean an individual, corporation, limited liability
company, unincorporated association, partnership, group (as defined in
Section 13(d)(3) of the Exchange Act), trust, joint stock company, joint
venture, business trust or unincorporated organization, any Governmental
Entity or any other entity of whatever nature.
"PREFERRED STOCK" shall mean the authorized preferred stock of the
Company, $.01 par value per share.
"PRO RATA SHARE" with respect to each Purchaser, shall mean a fraction
the numerator of which is the aggregate purchase price payable by such
Purchaser pursuant to this Agreement and the denominator of which is $10.0
million.
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"RECAPITALIZATION" shall have the meaning set forth in the Recitals.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Warrantholders
Registration Rights Agreement to be entered into by and among the Company
and the Purchasers at the Closing, which shall be in the form attached
hereto as EXHIBIT B.
"RELATED DOCUMENTS" shall mean the collective reference to the Merger
Agreement, the Debt Offering Memorandum, the Indenture with respect to the
Senior Notes, the Senior Notes, the Credit Agreement and the Lehman
Agreement.
"REQUIREMENT OF LAW" shall mean, as to any Person, the certificate of
incorporation and by-laws or other organizational documents of such Person,
and any law, statute, order, treaty, rule, regulation or guideline, or
judgment, decree, determination or order of any arbitrator, court or other
Governmental Entity, applicable to or binding upon such Person or any of
its property.
"SEC" shall mean the United States Securities and Exchange Commission.
"SECURITIES" shall mean the collective reference to the Series A
Preferred Stock and the Warrants.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SENIOR NOTES" shall mean the 9 7/8% Senior Notes Due 2008 of the
Company to be offered pursuant to the Debt Offering Memorandum.
"SERIES A PREFERRED STOCK" shall mean the Series A 10% Cumulative
Redeemable Preferred Stock of the Company, $.01 par value per share, stated
liquidation value of $1,000 per share and having the voting powers,
preferences and relative participating, optional and other special rights
and the qualifications, limitations or restrictions set forth in the
Certificate of Designations.
"SHAREHOLDERS AGREEMENT" shall mean the Shareholders Agreement dated
as of the Closing Date, to be executed and delivered by Holdings, JFL-EEC
LLC, the Purchasers in their capacity as holders of Warrant Shares upon
exercise of the Warrants and by the other shareholders of the Company named
therein, which shall be in the form of EXHIBIT C hereto.
"SUBSIDIARY" shall mean, as to any Person, a corporation, partnership
or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.
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"WARRANT" shall mean a warrant, in the form of EXHIBIT D, issued by
the Company to acquire upon exercise one share of Common Stock (as adjusted
from time to time pursuant to the terms thereof) and any warrant issued
upon transfer, division or combination thereof or in substitution therefor.
"WARRANT SHARES" shall mean shares of Common Stock issued upon
exercise of Warrants.
ARTICLE II
AUTHORIZATION, SALE AND PURCHASE OF THE SECURITIES
SECTION 2.01. AUTHORIZATION; AGREEMENT TO SELL AND PURCHASE.
(a) Upon and subject to the terms and conditions set forth in this
Agreement, the Company has authorized the issuance and sale to Purchasers of
(i) 10,000 shares of Series A Preferred Stock and (ii) Warrants exercisable for
a number of Warrant Shares equal to the Initial Percentage (which Warrant Shares
shall be subject to adjustment from time to time pursuant to the terms of the
Warrants).
(b) Upon and subject to the terms and conditions of this Agreement, and in
reliance upon the representations and warranties hereinafter set forth, the
Company agrees to issue, sell and deliver to Purchasers at the Closing provided
for in Section 2.02 hereof, and each Purchaser severally and not jointly agrees
to purchase from the Company, the number of shares of Series A Preferred Stock
set forth on ANNEX I hereto along with the Warrants as shall be exercisable for
a number of Warrant Shares equal to the Purchaser's Pro Rata Share of the
Initial Percentage (which Warrant Shares shall be subject to adjustment from
time to time pursuant to the terms of the Warrants) (which such number of
Warrants is set forth on ANNEX I hereto), for an aggregate purchase price with
respect to each such Purchaser as is set forth on ANNEX I hereto.
SECTION 2.02. CLOSING.
(a) Subject to the satisfaction or waiver of the conditions set forth in
this Agreement, the purchase and sale of the Securities pursuant to Section 2.01
(the "CLOSING") shall take place at the offices of Gibson, Dunn & Crutcher LLP,
200 Park Avenue, 48th Floor, New York, New York, on the first day on which the
conditions in Sections 5.01 and 5.02 are satisfied or waived by Purchasers or
the Company, as the case may be (the "CLOSING DATE"), or at such other time and
place as may be mutually agreed upon by Purchasers and the Company.
(b) At the Closing: (i) the Company shall deliver to each Purchaser,
against payment of the purchase price therefor, (A) certificates for the Series
A Preferred Stock sold in accordance with the provisions of Section 2.01,
registered in the name of such Purchaser
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or its nominee and in such denominations as such Purchaser shall specify not
less than two Business Days prior to the Closing Date and (B) certificates
evidencing the Warrants to be sold in accordance with the provisions of Section
2.01, registered in the name of such Purchaser or its nominee; (ii) each
Purchaser, in full payment for such Securities, against delivery of the stock
certificates and Warrants referred to above shall deliver to the Company on the
Closing Date immediately available funds, by wire transfer to such account as
the Company shall specify at least three Business Days prior to the Closing
Date, in the amount of the purchase price to be paid hereunder by such Purchaser
pursuant to Section 2.01; and (iii) each party shall take or cause to be taken
such other actions, and shall execute and deliver such other instruments or
documents, as shall be required under Article V hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) ORGANIZATION AND GOOD STANDING OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own, operate and lease its properties and to carry on its businesses as they are
now being conducted. The Company is duly licensed or qualified as a foreign
corporation for the transaction of business and is in good standing under the
laws of each other jurisdiction in which its ownership or leasing of properties,
or the conduct of its businesses requires such licensing or qualification and
good standing, except where the failure to be so licensed or qualified and in
good standing in any such jurisdiction would not have a Material Adverse Effect.
The Company has, prior to the date hereof, delivered to Purchasers a true and
complete copy of its certificate of incorporation and by-laws in each case as in
effect on the date of this Agreement.
(b) AUTHORIZATION; NO CONFLICTS. The Company has full corporate power and
authority to enter into this Agreement and the Ancillary Documents and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and each Ancillary Document and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been, and on or prior to the Closing Date each Ancillary Document
will be, duly and validly executed and delivered by the Company. This Agreement
constitutes, and upon its execution and delivery on or prior to the Closing Date
each Ancillary Document will constitute, a valid and legally binding obligation
of the Company enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors generally and by
general equitable principles. The execution, delivery and performance of this
Agreement and the Ancillary Documents, the consummation of the transactions by
the Company contemplated hereby and thereby and the compliance by the Company
with the provisions hereof and thereof will not conflict with, violate or result
in a
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breach of any provision of, require a consent, approval or notice under, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of or accelerate
the performance required by, or result in a right of termination or acceleration
under, or result in the creation of any Lien upon any of the properties or
assets of the Company under, (i) the certificate of designations or by-laws of
the Company, (ii) any Contractual Obligation of the Company or (iii) assuming
that the filings, consents and approvals specified in Schedule 3.01(c) have been
obtained, any Requirement of Law applicable to the Company.
(c) CONSENTS. No consent, approval, order or authorization of,
registration, declaration or filing with, or notice to, any Governmental Entity
is required in connection with the execution, delivery and performance of this
Agreement and the Ancillary Documents by the Company, the consummation by the
Company of the transactions contemplated hereby and thereby or the performance
by the Company of its obligations hereunder and thereunder, except for (i) such
filings as may be required under the blue sky laws of the various states and
(ii) such consents, approvals, orders, authorizations, registrations,
declarations, filings and notices as may be required in connection with the
exercise of the rights set forth in the Registration Rights Agreement.
(d) CAPITALIZATION.
(i) Giving effect to the Recapitalization and immediately
thereafter, (A) the authorized capital stock of the Company will consist of
5,000,000 shares of Common Stock and 20,000 shares of Preferred Stock,
(B) 2,300,000 shares of Common Stock will be issued and outstanding, no
shares of Common Stock will be held in treasury, and 353,744 shares of
Common Stock will be reserved for issuance upon exercise of outstanding
warrants (including the Warrants issuable to the Purchasers) and (C) 20,000
shares of Preferred Stock will be designated Series A Preferred Stock, of
which 10,000 will be issued and outstanding upon consummation of the
Recapitalization.
(ii) All of the issued and outstanding shares of the Company's
capital stock have been duly and validly authorized and issued and are
fully paid and nonassessable. Upon delivery of and payment for the shares
of Series A Preferred Stock on the Closing Date as provided herein, such
shares of Series A Preferred Stock will be duly and validly authorized and
issued, fully paid and nonassessable, and each Purchaser will acquire good
title thereto, free and clear of all Liens (other than any Lien created by
such Purchaser). The Warrant Shares have been reserved for issuance and,
when issued upon exercise of the Warrants, will be duly and validly
authorized and issued, fully paid and nonassessable and the owner of such
Warrant Shares will acquire good title thereto, free and clear of all Liens
(other than any Lien created by such Warrant owner).
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No class of capital stock of the Company and no holder of capital stock (or
rights to acquire capital stock) of the Company is entitled to preemptive
rights, other than as set forth in the Shareholders Agreement. There are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, shares of any capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of its capital stock or options,
warrants or rights to purchase or acquire any shares of its capital stock,
except for the Management Incentive Stock Option Plan.
(e) DISCLOSURE. This Agreement, the certificates and disclosure
statements delivered by or on behalf of the Company or the Company Subsidiaries,
and all other written materials delivered by the Company to Purchasers prior to
the date of this Agreement in connection with the transactions contemplated
hereby (including, without limitation, the Merger Agreement and the Debt
Offering Memorandum, taken as a whole and taking into account any written
revisions or corrections to such written materials delivered to Purchasers prior
to the date of this Agreement and including any statements, representations or
warranties incorporated herein by reference pursuant to Section 3.01(g)), do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, as of the
respective dates of such written materials, not misleading. There is no fact
peculiar to the Company or any of its Subsidiaries which the Company has not
disclosed to each Purchaser in writing which materially affects adversely or, so
far as the Company can now reasonably foresee, will materially affect adversely
the properties, business, or condition (financial or otherwise) of the Company
and its Subsidiaries taken as a whole or the ability of the Company to perform
this Agreement, the Related Documents or its obligations in respect of the
shares of Preferred Stock and the Warrants.
(f) OFFERING OF SECURITIES. Neither the Company nor any Person acting on
its behalf has taken or will take any action (including, without limitation, any
offering of any securities of the Company under circumstances which would
require the integration of such offering with the offering of the Series A
Preferred Stock or the Warrants under the Securities Act and the rules and
regulations of the SEC thereunder) which might subject the offering, issuance or
sale of any of the Series A Preferred Stock or Warrants to the registration
requirements of the Securities Act. The offer, sale and issuance of the Series
A Preferred Stock and Warrants by the Company under this Agreement will not
violate the Securities Act, the Exchange Act or any applicable state securities
or "blue sky" laws.
(g) INCORPORATION BY REFERENCE OF REPRESENTATIONS AND WARRANTIES IN
PURCHASE AGREEMENT. The representations and warranties made by the Company in
respect of Company Holdings and its Subsidiaries and their business, properties,
capitalization, financial condition and operations in the Purchase Agreement
dated as of January 30, 1998 related to the Senior Notes and in the Credit
Agreement are incorporated herein as if made by the Company to the Purchasers
and as if set forth fully herein.
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(h) OFFERING OF SHARES. Neither the Company nor any person acting on its
behalf has offered the Series A Preferred Stock, the Warrants or any similar
securities of the Company for sale to, solicited any offers to buy the Preferred
Stock, the Warrants or any similar securities of the Company from or otherwise
approached or negotiated with respect to the Company with any Person other than
the Purchasers and not more than 35 other institutional investors. Neither the
Company nor any Person acting on its behalf has taken or will take any action
(including, without limitation, any offering of any securities of the Company
under circumstances which would require the integration of such offering with
the offering of the Preferred Stock and the Warrants under the Securities Act
and the rules and regulations of the Commission thereunder) which might subject
the offering, issuance or sale of the Preferred Stock and the Warrants to the
registration requirements of Section 5 of the Securities Act.
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.
Each Purchaser, severally and not jointly, represents and warrants to, and
agrees with, the Company as follows:
(a) SECURITIES ACT. Such Purchaser (i) is acquiring the Securities solely
for the purpose of investment and not with a view to, or for resale in
connection with, any distribution thereof in violation of the Securities Act;
(ii) has had the opportunity to ask questions of the officers and directors of,
and has had access to information concerning, the Company and the terms of the
Securities and Warrant Shares; (iii) is an "accredited investor" as defined in
Rule 501(a) under the Securities Act; (iv) has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the investment in the Securities; (v) has so
evaluated the merits and risks of such investment; (vi) is able to bear the
economic risk of such investment; and (vii) is able to afford a complete loss of
such investment.
(b) BROKERS AND FINDERS. None of the Purchasers nor any of their
officers, directors, employees or agents has utilized any broker, finder,
placement agent or financial advisor or incurred any liability for any fees or
commissions in respect thereof in connection with any of the transactions
contemplated hereby or by the Ancillary Documents. Such Purchaser agrees to
indemnify the Company and to hold it harmless from and against any and all
claims, liabilities or obligations with respect to any fees or other amounts
payable as a result of any act or statement made by such Purchaser or any of its
Affiliates.
(c) LEGAL INVESTMENT. Each of the Purchasers represents and warrants to
the Company that its purchase of the Series A Preferred Stock and Warrants
hereunder is a legal investment for such Purchaser and such investment is not a
prohibited investment for such Purchaser under any insurance or other
regulations applicable to such Purchaser or its business.
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ARTICLE IV
ADDITIONAL AGREEMENTS OF THE PARTIES
SECTION 4.01. TAKING OF NECESSARY ACTION.
(a) Each of the parties hereto agrees to use all reasonable efforts
promptly to take or cause to be taken all actions and promptly to do or cause to
be done all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Ancillary Documents. Without limiting the foregoing, the
Company and Purchasers will, and the Company shall cause the Company
Subsidiaries to, each use all reasonable efforts to make all filings and obtain
all consents of Governmental Entities which may be necessary or, in the opinion
of such Purchaser or the Company, as the case may be, advisable for the
consummation of the transactions contemplated by this Agreement and the
Ancillary Documents.
(b) The Company shall provide to the Purchasers copies of all applications
and filings in advance of filing with the applicable Governmental Entity and
shall consult with the other parties regarding the contents thereof.
SECTION 4.02. CONDUCT OF BUSINESS; LINE OF BUSINESS.
(a) Except as required to (i) perform its obligations under this Agreement
and the Ancillary Documents and (ii) effect the transactions described in the
Debt Offering Memorandum, from the date hereof to the Closing Date, the Company
shall, and shall cause each of the Company Subsidiaries to conduct its
operations in accordance with its ordinary course of business and consistent
with past practice and use its best efforts to preserve intact the business
organizations of the Company and the Company Subsidiaries, to keep available the
services of their respective officers and key employees and to preserve the good
will of those having business relationships with the Company and Company
Subsidiaries.
(b) After the consummation of the Recapitalization, the Company will
continue to engage principally in the business now conducted by it or a business
or businesses similar thereto or reasonably compatible therewith.
SECTION 4.03. INSPECTION OF PROPERTY.
(a) The Company will keep, and will cause each Subsidiary to keep, proper
books of record and account in which full and correct entries will be made of
all dealings or transactions of or in relation to the business and affairs of
the Company or such Subsidiary, in accordance with GAAP consistently maintained.
For so long as any Purchaser or their respective Eligible Transferees owns any
shares of Series A Preferred Stock, Warrants or Warrant Shares, the Company
shall permit a representative of Purchaser or such Eligible Transferee to visit
any of its properties and inspect its corporate books and financial records (but
excluding any such books, records, agreements and files which are protected by
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attorney-client privilege or which the Company is prohibited from disclosing to
Purchasers or such Eligible Transferees pursuant to any nondisclosure agreements
to which the Company or any Company Subsidiary is a party; PROVIDED that, to the
extent permitted under any such nondisclosure agreement, the Company shall
disclose any information subject to such nondisclosure agreement upon execution
and delivery by such Purchaser or Eligible Transferee of a confidentiality
agreement for the benefit of the parties to such nondisclosure agreement and
PROVIDED, FURTHER, that no such nondisclosure agreement shall be effective with
respect to financial records to the Company), and will discuss its accounts,
affairs and finances with a representative of Purchaser or such Eligible
Transferee during reasonable business hours, at such times as Purchaser or such
Eligible Transferee may reasonably request. In addition, the Company will
provide from time to time such information regarding results of operations,
financial condition, business or prospects of the Company and the Company
Subsidiaries as such Purchaser or Eligible Transferee may reasonably request.
(b) No investigation by or on behalf of any Purchaser pursuant to this
Section or otherwise shall affect any representation or warranty of the Company
herein or the conditions to the obligations of the parties hereunder.
SECTION 4.04. USE OF PROCEEDS.
The proceeds of the sale of the Securities shall be used by the Company to
effect the Recapitalization.
SECTION 4.05. TRANSFER OF SECURITIES.
(a) Each Purchaser acknowledges and agrees that as of the date hereof
neither the Securities nor the Warrant Shares have been or will be registered
under the Securities Act or the securities laws of any state and that they may
be sold or otherwise disposed of only in one or more transactions registered
under the Securities Act and, where applicable, such laws, or as to which an
exemption from the registration requirements of the Securities Act and, where
applicable, such laws, is available. Each Purchaser acknowledges that, except
as provided in the Registration Rights Agreement with respect to the Warrant
Shares, such Purchaser has no right to require the Company to register the
Securities or Warrant Shares. Each Purchaser agrees not to sell, transfer,
pledge or hypothecate any Securities or Warrant Shares except pursuant to (i) an
effective registration statement for such Securities or Warrant Shares under the
Securities Act or (ii) a transaction that is exempt from the registration
requirements of the Securities Act; PROVIDED that the transferee of such
Purchaser acknowledges and agrees to abide by the provisions of this Section
4.06 and, in the case of the transfer of any Warrants or Warrant Shares, the
applicable provisions of the Shareholders Agreement. Except in the case of a
transfer pursuant to Rule 144A under the Securities Act, the Holder may be
required, upon reasonable request of the Company, to provide the Company with an
opinion of counsel to such Purchaser (which opinion may be given by in-house
counsel and otherwise to be in form and substance reasonably satisfactory to the
Company) to the effect that such transfer is exempt from the registration
requirements of the
12
Securities Act. Notwithstanding the foregoing, the Securities and Warrant
Shares may be transferred to any Eligible Transferee of such Purchaser without
any registration or opinion, subject to the foregoing restrictions on future
sale, transfer, pledge or hypothecation by such Eligible Transferee. The
Company shall cooperate with Purchasers and their transferees in supplying such
information as may be necessary for such Purchasers or transferees to complete
and file any information reporting forms currently or hereafter required by the
SEC as a condition to the availability of an exemption from the registration
requirements of the Securities Act for the sale of restricted securities.
(b) Each Purchaser further acknowledges and agrees that each certificate
for the Securities and Warrant Shares shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY BE OFFERED,
SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IF
REGISTERED PURSUANT TO THE PROVISIONS OF THE ACT AND SUCH LAWS,
OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THIS
CERTIFICATE IS ISSUED PURSUANT TO AND SUBJECT TO THE PROVISIONS
OF AN INVESTMENT AGREEMENT, DATED FEBRUARY 3, 1998 (AS AMENDED,
SUPPLEMENTED OR OTHERWISE MODIFIED, THE "INVESTMENT AGREEMENT"),
BETWEEN THE COMPANY AND THE PURCHASERS REFERRED TO THEREIN, A
COPY OF WHICH IS ON FILE WITH THE COMPANY."
Any holder of Securities or Warrant Shares may request the Company to remove any
legend described herein from the certificates evidencing such Securities or
Warrant Shares by submitting to the Company such certificates, together with an
opinion of counsel, if requested, reasonably satisfactory to the Company to the
effect that such legend is no longer required under the Securities Act. In
addition, each Purchaser further acknowledges that the Warrants and the Warrant
Shares shall bear the following additional legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
A SHAREHOLDERS AGREEMENT DATED AS OF FEBRUARY 3, 1998 (THE
"AGREEMENT"), WHICH CONTAINS PROVISIONS REGARDING (I) CERTAIN
RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES, (II) CERTAIN
RIGHTS OF FIRST OFFER, TAG-ALONG RIGHTS AND DRAG-ALONG RIGHTS
APPLICABLE TO THIS SECURITY AND (III) CERTAIN OTHER MATTERS. A
COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
13
PRINCIPAL OFFICE OF THE COMPANY. ANY TRANSFER OF THE SECURITIES
EVIDENCED BY THIS CERTIFICATE IN VIOLATION OF THE AGREEMENT IS NULL
AND VOID."
SECTION 4.06. FURTHER ASSURANCES.
Each party shall execute and deliver such additional instruments and other
documents and shall take such further actions as may be necessary or appropriate
to effectuate, carry out and comply with all of the terms of this Agreement and
the transactions contemplated hereby, including, without limitation, making
application as soon as practicable for all consents and approvals required in
connection with the transactions contemplated hereby and diligently pursuing the
receipt of such consents and approvals in good faith.
SECTION 4.07. ALLOCATION OF PURCHASE PRICE.
The parties agree that for tax purposes, a reasonable allocation of the
total purchase price is to allocate $ 9,755,000 to the purchase price of the
Series A Preferred Stock and $ 245,000 to the purchase price of the Warrants.
The parties agree that all tax returns filed by the Company and Purchasers shall
be prepared in a manner consistent with such allocation.
SECTION 4.08. INFORMATION RIGHTS.
(a) The Company covenants that during the period commencing on the Closing
Date and for so long as an Initial Purchaser or its Eligible Transferee holds $1
million in stated liquidation value of Series A Preferred Stock, the Company
will deliver to such Initial Purchaser, at its address set forth in the records
of the Company:
(i) as soon as practicable and in any event within 45 days after
the end of each quarterly period (other than the last quarterly period) in
each fiscal year, unaudited consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its subsidiaries for
the period from the beginning of such quarterly period and from the
beginning of the then current fiscal year to the end of such quarterly
period, and a consolidated balance sheet of the Company and the Company
Subsidiaries as of the end of such quarterly period, setting forth in each
case in comparative form figures for the corresponding period or date in
the preceding fiscal year; and
(ii) as soon as practicable and in any event within 90 days after
the end of each fiscal year, an audited consolidated balance sheet of the
Company and the Company Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income, changes in shareholders'
equity and cash flows for such fiscal year, setting forth in each case in
comparative form the corresponding figures from the preceding fiscal year,
together with the audit report of the independent public accountants of
recognized standing selected by the Company.
14
(c) In addition, the Company covenants that for such period as a Purchaser
is entitled to receive the reports set forth in Section 4.08(a) above, the
Company shall provide such holder with (i) monthly unaudited financial
statements of the Company and the Company Subsidiaries not later than 30 days
after the last day of each fiscal quarter and (ii) such other information
relating to the Company's operations as such Purchaser may reasonably request
from time to time.
ARTICLE V
CONDITIONS
SECTION 5.01. CONDITIONS OF PURCHASE.
The respective obligations of each Purchaser to purchase the Securities to
be purchased by it at the Closing is subject to the satisfaction or waiver of
each of the following conditions on or prior to the Closing Date:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations and
warranties of the Company contained in or incorporated by reference in this
Agreement and the Ancillary Documents shall be true and correct in all material
respects on and as of the date of this Agreement or the date of such Ancillary
Documents, as the case may be, and on and as of the Closing Date, with the same
effect as though made on and as of such date, except to the extent any such
representation and warranty is made as of a specified date, in which case such
representation and warranty shall be true and correct in all material respects
on and as of such specified date, and the Company shall have performed in all
material respects all obligations, agreements, undertakings, covenants and
conditions of this Agreement and the Ancillary Documents to be performed at or
prior to the Closing Date.
(b) NO INJUNCTION. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby.
(c) REGULATORY APPROVALS. All permits, consents, authorizations, orders
and approvals of, and filings and registrations required under any Federal or
state law, rule or regulation for or in connection with the execution and
delivery of this Agreement and the Ancillary Documents and the consummation by
the parties hereto of the transactions contemplated on such parties' part hereby
and thereby shall have been obtained or made and all statutory waiting periods
thereunder in respect thereof shall have expired.
(d) ISSUANCE OF SENIOR NOTES; RECAPITALIZATION. Prior to or simultaneously
with the issuance of the Securities, (i) the Recapitalization shall have been
effected on terms and pursuant to such agreements as are reasonably satisfactory
in all respects to Purchasers, the Senior Notes shall have been issued on terms
and pursuant to such agreements and documents as shall be reasonably
satisfactory to Purchasers in all respects and (ii) each of the
15
Related Documents shall have been executed and delivered by each of the parties
thereto and shall be reasonably satisfactory to Purchasers in all respects.
(e) OPINION OF COUNSEL. Each Purchaser shall have received at the Closing
from Gibson, Dunn & Crutcher LLP, counsel to the Company, a favorable written
opinion dated as of the Closing Date which shall address each of the matters set
forth in EXHIBIT E and which shall otherwise be in form and substance
satisfactory to Purchasers.
(f) REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement
shall have been duly executed and delivered by the Company.
(g) SHAREHOLDERS AGREEMENT. The Shareholders Agreement shall have been
duly executed and delivered by the Company and each Shareholder party thereto.
(h) CERTIFICATE OF DESIGNATIONS. The Certificate of Designations of the
Company shall have been filed with the Secretary of State of the State of
Delaware as set forth in EXHIBIT A hereto.
(i) AMENDMENT OF BY-LAWS. The By-Laws of the Company shall have been
amended and restated as set forth in EXHIBIT F hereto.
SECTION 5.02. CONDITIONS OF SALE.
The obligation of the Company to sell the Securities to be sold at the
Closing is subject to satisfaction or waiver of each of the following conditions
precedent:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations and
warranties of Purchasers contained in this Agreement shall be true and correct
in all material respects on and as of the date of this Agreement and on and as
of the Closing Date with the same effect as though made on and as of such date,
except to the extent any such representation and warranty is made as of a
specified date, in which case such representation and warranty shall be true and
correct in all material respects on and as of such specified date, and
Purchasers shall have performed in all material respects all obligations,
agreements, undertakings, covenants and conditions required by them to be
performed at or prior to the Closing.
(b) NO INJUNCTION. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby.
(c) REGULATORY CONSENTS. All permits, consents, authorizations, orders
and approvals of, and filings and registrations required under Federal or state
law, rule or regulation for or in connection with the execution and delivery of
this Agreement and the Ancillary Documents and the consummation by the parties
hereto of the transactions
16
contemplated on such parties' part hereby and thereby shall have been obtained
or made and all statutory waiting periods thereunder in respect thereof shall
have expired.
(d) ISSUANCE OF SENIOR NOTES; RECAPITALIZATION. Prior to or simultaneously
with the issuance of the Securities, each of the following shall have occurred:
(i) the Senior Notes shall have been issued by the Company, (ii) the Credit
Agreement shall have been executed and delivered by the parties thereto and
(iii) the Recapitalization shall have been effected.
(e) REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement
shall have been duly executed and delivered by Purchasers.
(f) SHAREHOLDERS AGREEMENT. The Shareholders Agreement shall have been
duly executed and delivered by Purchasers in their capacity as holders of
Warrant Shares upon exercise of the Warrants.
ARTICLE VI
TERM
SECTION 6.01. TERMINATION.
This Agreement may be terminated on or any time prior to the Closing:
(a) by the mutual written consent of Purchasers and the Company; or
(b) by either the Company or Purchasers if the Closing shall have
not have occurred on or prior to February 28, 1998, unless the failure of
such occurrence shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe its agreements set forth
herein required to be performed or observed by such party on or before the
Closing; or
(c) by the Company or Purchasers pursuant to notice if any
Governmental Entity of competent jurisdiction shall have denied any
approval under any of the laws, rules or regulations necessary for the
consummation of the transactions contemplated hereby by a final and
unappealable order.
SECTION 6.02. EFFECT OF TERMINATION.
In the event of the termination of this Agreement as provided in Section
6.01, this Agreement shall forthwith become void, except for the obligations set
forth in this Section and in 7.06 and 7.07 and there shall be no liability or
obligation on the part of the parties hereto except as otherwise provided in
this Agreement. The termination of this Agreement under Section 6.01(b) shall
not relieve any party of any liability for breach of this Agreement prior to the
date of termination.
17
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties made herein shall survive the execution
and delivery of this Agreement and the issuance and delivery of the Series A
Preferred Stock and the Warrants.
SECTION 7.02. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given, if delivered personally, by telecopier
or sent by overnight courier as follows:
(a) if to the Purchasers and their counsel:
(i) if to Purchaser I, to:
Jackson National Life Insurance Company
c/o PPM America, Inc.
225 West Wacker Drive, Suite 1200
Attention: Debbie Ackerman
---------------
Fax: (312) 634-0054
WITH A COURTESY COPY TO:
Schwartz, Cooper, Greenberger & Krauss
180 North LaSalle Street, Suite 2700
Chicago, Illinois 60601
Attention: Brian O'Neil, Esq.
Phone: (312) 845-5404
Fax: (312) 782-8416
(ii) if to Purchaser II, to
Indosuez Capital
1211 Avenue of the Americas
New York, NY 10036-8701
Attention: Ken Kencel, Thierry de Vergnes
WITH A COURTESY COPY TO:
Ropes & Gray
18
One International Place
Boston, MA 02110
Attention: Daniel Evans, Esq.
(iii) if to Purchaser III, to:
Old Hickory Fund I, L.L.C.
c/o PPM America, Inc.
225 West Wacker Drive, Suite 1200
Attention: Debbie Ackerman
---------------
Fax: (312) 634-0054
WITH A COURTESY COPY TO:
Schwartz, Cooper, Greenberger & Krauss
180 North LaSalle Street, Suite 2700
Chicago, Illinois 60601
Attention: Brian O'Neil, Esq.
Phone: (312) 845-5404
Fax: (312) 782-8416
(b) if to the Company to:
JFL-EEC Merger Sub Co.
C/O J.F. Lehman & Company
450 Park Avenue, Sixth Floor
New York, New York 10022
Attention: Mr. Donald Glickman
Phone: (212) 634-1160
Fax: (212) 634-1155
AND WITH A COURTESY COPY TO:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Kenneth M. Doran, Esq.
Phone: (213) 229-7000
Fax: (213) 229-7520
or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.
19
SECTION 7.03. ENTIRE AGREEMENT; AMENDMENT.
This Agreement, the Ancillary Documents and the documents described herein
and therein or attached or delivered pursuant hereto or thereto set forth the
entire agreement between the parties hereto with respect to the transactions
contemplated by this Agreement. Any provision of this Agreement may be amended
or modified in whole or in part at any time by an agreement in writing between
the parties hereto executed in the same manner as this Agreement. No failure on
the part of any party to exercise, and no delay in exercising, any right shall
operate as a waiver thereof nor shall any single or partial exercise by any
party of any right preclude any other or future exercise thereof or the exercise
of any other right. No investigation by Purchasers of the Company or any
Company Subsidiary prior to or after the date hereof shall stop or prevent
Purchasers from exercising any right hereunder or be deemed to be a waiver of
any such right.
SECTION 7.04. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to constitute an original, but all of which together shall
constitute one and the same document.
SECTION 7.05. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN THAT STATE.
SECTION 7.06. PUBLIC ANNOUNCEMENTS.
Each of the parties hereto agrees to hold in strict confidence and not to
disclose to others the status of any discussions or relations among the parties
with respect to the subject matter of this Agreement until such time as the
parties mutually agree to publicly disclose such information or are obligated by
any legal or regulatory agency requirement to disclose such information;
PROVIDED that a description of this transaction mutually satisfactory to the
Company and the Purchasers may be included in the Debt Offering Memorandum.
SECTION 7.07. FEES AND EXPENSES.
The Company or an Affiliate of the Company shall be responsible for the
costs and expenses incurred by the Purchasers, the Company and its Affiliates in
connection with this Agreement and the Ancillary Documents and the transactions
contemplated hereby, including the reasonable fees and expenses of their
counsel, Schwartz, Cooper, Greenberger & Krauss.
20
SECTION 7.08. SUCCESSORS AND ASSIGNS.
Subject to applicable law, any Purchaser may assign its rights under this
Agreement in whole or in part, but no such assignment shall relieve such
Purchaser of its obligations hereunder. The Company may not assign any of its
rights or delegate any of its duties under this Agreement without the prior
written consent of Purchasers; PROVIDED, HOWEVER, that it is understood and
agreed by the parties that the Company will be merged with and into Holdings,
with Holdings as the surviving corporation, pursuant to the Merger Agreement
and, upon consummation of the Merger, this Agreement and the rights and
obligations of the Company hereunder will be transferred to and assumed by
Holdings. Any purported assignment in violation of this Section shall be void.
SECTION 7.09. ARBITRATION.
Any controversy, dispute or claim arising out of, in connection with or in
relation to the interpretation, performance or breach of this Agreement shall be
determined, at the request of any party, by arbitration in a city mutually
agreeable to the parties to such controversy, dispute or claim, or, failing such
agreement, in New York, New York, before and in accordance with the
then-existing Rules for Commercial Arbitration of the American Arbitration
Association, and any judgment or award rendered by the arbitrator will be final,
binding and unappealable and judgment may be entered by any state or Federal
court having jurisdiction thereof. The pre-trial discovery procedures of the
Federal Rules of Civil Procedure shall apply to any arbitration under this
Section 7.09. Any controversy concerning whether a dispute is an arbitrable
dispute or as to the interpretation or enforceability of this Section 7.09 shall
be determined by the arbitrator. The arbitrator shall be a retired or former
United States District Judge or other person acceptable to each of the parties,
provided such individual has substantial professional experience with regard to
corporate or partnership legal matters. The parties intend that this agreement
to arbitrate be valid, enforceable and irrevocable.
SECTION 7.10. SPECIFIC PERFORMANCE.
The Company acknowledges that the rights granted to Purchasers in this
Agreement are of a special, unique and extraordinary character, and that any
breach of this Agreement by the Company could not be compensated for by damages.
Accordingly, if the Company breaches its obligations under this Agreement,
Purchasers shall be entitled, in addition to any other remedies that they may
have, to enforcement of this Agreement by a decree of specific performance
requiring the Company to fulfill its obligations under this Agreement.
SECTION 7.11. CAPTIONS.
The captions contained in this Agreement are for reference purposes only
and are not part of this Agreement.
21
SECTION 7.12. MUTUAL WAIVER OF JURY TRIAL.
THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
or by their respective duly authorized representatives, all as of the date first
above written.
JFL-EEC MERGER SUB CO.
By: /s/ Donald Glickman
-------------------------------
Donald Glickman, President
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: PPM America, Inc., its agent
By: /s/ Debbie Ackerman
-------------------------------
Debbie Ackerman, Managing Director
INDOSUEZ ELECTRONICS PARTNERS
By: Indosuez CM II, Inc., its Managing
General Partner
By: /s/ Michael Walsh
-------------------------------
Michael Walsh, Vice President
By: /s/ Allen Gruenhut
-------------------------------
Allen Gruenhut, Vice President
OLD HICKORY FUND I, L.L.C.
By: PPM America, Inc., its agent
By:/s/ Debbie Ackerman
-------------------------------
Debbie Ackerman, Managing Director
22
ANNEX I
NUMBER OF SHARES OF PREFERRED STOCK;
NUMBER OF WARRANTS AND PURCHASE PRICE
----------------------------------------------
- --------------------------------------------------------------------------------
NUMBER NUMBER PURCHASE
PURCHASER OF SHARES OF WARRANTS PRICE
- --------------------------------------------------------------------------------
Jackson National Life Insurance Company 7,880 278,750 $7,880,000
- --------------------------------------------------------------------------------
Indosuez Electronics Partners 2,000 70,749 $2,000,000
- --------------------------------------------------------------------------------
Old Hickory Fund I, L.L.C. 120 4,245 $120,000
- --------------------------------------------------------------------------------
Total 10,000 353,744 $10,000,000
- --------------------------------------------------------------------------------